Socially Responsible Investing Will Require Human Input, Not Algorithms

Successful sustainable investments may require a seasoned financial expert to steer the helm, as opposed to relying too heavily on algorithms.

As more investors around the world consider socially responsible investments that track environmental, social, and governance issues, Goldman Sachs argued that people help lay the groundwork for better ESG investments, Bloomberg reports.

To do “ESG, activism and stewardship, it requires people, ” Thomas Konig, Goldman’s head of asset management in the Nordic region, said in Copenhagen.

“Some of it you can make quantitative, but definitely not all of it,” he added.

Goldman is adding 40% to its Nordic business, helping it better access a savings market that’s one of the world’s largest per capita. Their efforts are aimed at targeting investors in the region who are among the most demanding when it comes to ESG investing. Consequently, more asset managers are finding they have to adjust their strategies to win over these discerning investors.

“Clearly, active management has a role to play again,” Konig said. It’s “not just something that is fading out versus ETFs and private markets.”

The change in tune comes after years of electronically traded funds made big gains against actively managed portfolios. Many turned to cost-saving investments in an ultra-low-rate environment with markets moving in lockstep. However, Konig now argues that a human touch is required in the field of ESG investing.

Looking ahead, Goldman Sachs has “an intense pipeline” of new products planned this year, especially in fixed income, and Konig said he “would not be surprised if all of our new ETFs will be ESG or active or have a certain filter embedded.”

“We will not just have a new MSCI something,” he added.

For more news, information, and strategy, visit the ESG Channel.