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ESG considerations can protect capital

ESG protecting capital

Trustees who take ESG issues into consideration as part of their investment decisions have a better chance of protecting their capital.

Taking environmental, social and governance (ESG) issues into account when making an investment decision can significantly increase the chances of protecting the capital funds, according to a local fund manager.

Magellan Financial Group key account manager Emma Kirk told delegates at the smstrusteenews SMSF Trustee Empowerment Day 2019, while this correlation may not be apparent on the surface, an examination of specific sectors can illustrate the point. To this end, she used the payments industry as an example.

“We invest in Visa and Mastercard and we are interested as to whether they can secure their clients’ data and if there are any actual data breaches,” Kirk said.

“If they did have a data breach, there would be three impacts off the back of that. Firstly, they would lose customers. People would lose trust in them and perhaps invest their money in American Express, so they would lose revenue margin and revenue share across their customer base.

“In addition to that, there could be fines imposed by regulators, so that’s going to hit their bottom line as well.

“And then finally there’s the cost of remediation. So they would have to remediate particular clients and compensate them accordingly. So you’ve got the cost and the time of the financial compensation there.”

For these reasons, Kirk said Magellan likes to eliminate these types of risks from their portfolios. Further, the approach aligns with one of the manager’s primary objectives of avoiding a permanent capital loss, she said.

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