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  • Nigel Douglas

ESG Contradictions

Last week, I attended a number of excellent conferences run by Nikko AM, Portfolio Construction Forum ("PCF"), MFS and i3 investment innovation institute ("i3").

There were some interesting presentations on the incorporation of ESG (Environmental, Social, Governance) factors in investing. This type of investing is enjoying a renaissance and arguably there is now increased evidence that application of ESG can lead to better long-term outperformance (at least in global equities).

Whilst considerable science and thought is being applied to ESG investing, a clear challenge is that global industry supply chains are complex and there could be trade-offs that need to be assessed by fund managers when assessing companies at different levels of production.

An example of the complex issues that can arise is provided in a recent article (23.08.2017) published by DW (Deutsche Welle at that draws on work by Amnesty International (from their report published in January 2016) that raises human rights issues (child labour, in particular) from the mining of cobalt in DR Congo.

According to the article, ‘the world’s largest deposit of cobalt lies in the Copperbelt region in DR Congo’. Cobalt is used in the lithium ion batteries that in turn are used in e-cars (electronic cars). Apparently, some improvements have been made and an update report is expected to be published by Amnesty International later this year.

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