Transitioning to a sustainable mindset requires a long-term perspective, collective efforts, and continual evolution.
March 31, 2022
As Director, Responsible Investing, Adelina Romanelli is at the heart of Sun Life Global Investments’ sustainable investing overall approach. Adelina’s role has evolved in step with the growing prominence of environmental, social, and governance (ESG) issues.
Adelina is involved in multiple related initiatives, including SLGI Asset Management Inc.’s Manager Research function. She focuses on applying an ESG lens in assessing our sub-advisors and is involved in broader product expansion efforts. Adelina is also responsible for how we communicate our priorities. In this interview, she explains the impact of ESG integration and sustainable investing and how they affect her role.
Q: Why did Sun Life Global Investments create a dedicated responsible investing role?
A: My role aligns perfectly with Sun Life’s mission statement of helping our Clients achieve lifetime financial security and Sun Life Global Investments’ goal of helping Canadians build wealth and manage financial risks. As forces driving ESG issues converge, and pressures on human and natural capitals mount, valuations will increasingly be affected. This applies to all investments, corporations and governments alike. This concept is brought to life, in general terms, via ESG integration, or embedding ESG issues across all aspects of investment decisions.
Taken a step further, we must—and do—recognize that challenges inherent from environmental and social issues will increasingly affect our entire ecosystem, including our financial ecosystem. If we try to move toward a more resilient ecosystem (environmentally and financially), whole economies will be more resilient and “future fit” over time. Applying this multi-dimensional and holistic lens is ultimately beneficial for Clients over the long term, and for society as a whole. And that aligns with our goals at Sun Life Global Investments, as well as our parent company’s mission.
Q: Responsible investing is a spectrum. Can you discuss the different levels of responsible investing?
A: There is no uniform definition of responsible investing, or what it entails. Responsible investing has multiple facets, but the main goal is to invest proactively. A few kinds of responsible investing are:
- Positive screening is one type of responsible investing that involves selecting companies with attractive or improving ESG profiles or that meet specific standards or thresholds, for example, screening for companies that abide by international human rights standards or that are involved in delivering positive environmental impacts.
- ESG integration, as I mentioned, is embedding ESG issues across all aspects of investment decisions. This contributes to information empowerment.
- Divestment (also referred to as negative screening) is another part of the picture. Divestment decisions can be based on preferences or values. For example, we can choose not to support specific industries, such as gambling, tobacco and fossil fuels. Divestment decisions can also be based on financial values. An example would be choosing not to invest in companies that violate basic human rights, which would likely erode the value of those companies over time.
Q: Has Sun Life Global Investments asked sub-advisors to divest from any specific sectors at this time?
A: We see divestment as a last resort. We prefer that our sub-advisors engage with companies, instead of divesting from them altogether. We believe that if everyone divests from specific sectors, society will not be able to address the major challenges we face. Again, this recognizes that our ecosystems are deeply interconnected.
We have to remember that there are systemic issues at play. For example, if a responsible investment manager refuses to invest in a company with a record and trajectory of high carbon emissions, the manager would lose its voice. This may be a missed opportunity to engage with the company. On the other hand, if the investment manager engages with the same company individually or collectively (e.g., by working with executives or through proxy voting), there is an opportunity to influence the company to evolve its business model and practices. Corporate engagement, combined with advocacy, could pave the path towards lasting change on both the environmental and social front.
Progressing towards positive outcomes such as climate change or inequitable social structures is ultimately beneficial for economies and ecosystems. Our investments would then feel the ripple effects. As a manager of funds that is invested in many sectors and geographies, we are exposed to a multitude of systemic risks. The greatest leverage we have is to encourage engagement so we can tackle these systemic challenges directly. And we can’t do that through divestment. Having said that, recognizing the urgency and need of change, we are paying close attention to escalation strategies, including time-bound objectives, when necessary. Examples include situations where company representatives are not open to dialogue or deliberation.
Q: In the industry, we frequently hear about big commitments to responsible investing and climate action. But we know that this could be greenwashing in some cases. How do we know if a business or leader is really committed?
A: Our whole ecosystem is awash with pledges and ambitions. In spite of this, challenges linger and are sometimes worsening. The biggest headwind is that many boards of directors and portfolio managers are incentivized by short-term performance, sometimes to the detriment of long-term value creation.
Changing that will involve a huge overhaul. That’s why we see so much greenwashing. If people believe a short-term view gives better results, they will not pay as close attention to the longer term. That is why senior management needs to be on board. We need to get to a point where company management and boards of directors have sufficiently bold key performance indicators in place.
Q: How can a mutual fund manager like Sun Life Global Investments influence companies to seriously engage with ESG issues?
A: Company culture is the key.
It’s not simple, since ESG factors are relatively recent, dynamic, and multi-faceted. Embedding ESG issues systematically and explicitly is not the easiest transition to make. It takes purposeful training and deliberation to build capacity. This explains why culture and the company’s direction of travel are so critical.
It also requires intimate company knowledge, and a natural understanding of the evolution of ESG issues. Moreover, given the interconnectivity of many important ESG challenges and the need to place greater focus on outcomes, we also expect our managers to continue to amplify their voices (speaking to the points made above) and provide the needed transparency.
Q: What is the next step in Sun Life Global Investments’ sustainability journey?
A: Raising our expectations around our manager’s responsible ownership (stewardship) practices, to amplify their voices—and by extension, our voices— on these pressing issues remains key. We also strive towards understanding to what extent our sub-advisors have these issues top of mind. We want sub-advisors to manage capital with insights and foresights and engage act as responsible and proactive stewards. Our goal? To make our sub-advisors aware of the systemic issues they face so that the companies they invest in can, in turn, up their game.
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