‘If you don’t take ESG into account, you can’t deliver adequate returns’
Christoph Schumacher of Manulife Investment Management offers a global view of sustainable investing, regulations and trends. By Richard Betts.
Manulife Investment Management is the wealth and asset management company of the Manulife Financial Corporation, one of the largest insurance groups in Canada. Real Asset Impact caught up with Christoph Schumacher, global head of real assets for private markets, to discuss the importance of ESG and impact investing to the company and its clients.
What is Manulife Investment Management’s company strategy?
Within real assets, we concentrate on timberland, agriculture, infrastructure and real estate. We’re managers of the largest global timberland portfolio for institutional investors, with assets in Australia, New Zealand, the US, Canada, Brazil and Chile.
We also manage the second-largest farmland portfolio – again, globally diversified – and we’ve just raised $4.7 billion for our infrastructure fund concentrating on mid-cap US. We invest in global infrastructure for our parent company, including in Asia and Europe and, last but not least, real estate has always been very important for the company.
We’ve been asset managers for more than 100 years, with $1.1 trillion assets currently under management. We work to provide sustainable and adequate investments for our insurance group, but also for like-minded global investors on the institutional side, as well as the private side.
What do see as the key market trends you think are influencing the sector?
I think that investing in sustainable ESG-driven assets is key for all our peers, and for us – and I really believe we’re a front runner in this area. Our Canadian heritage, backed by a very long-return, delivery-orientated insurance group, means that we’ve always focused not just on environmental sustainability, but on high social and governance standards.
ESG investing really is a game changer now, not just some add-on, which will govern all real asset industries for the foreseeable future. When I was at the World Economic Forum in Davos, I realised that ESG investing is more than just groundswell opinion, and that CEOs are now entrenching ESG into their new strategies – and we love to see that.
You mentioned ESG as a key focus. Why is that so important for the company?
We need to be investors for the long term. We have fiduciary obligations towards the insurance business, our policy holders and the third-party money that has to be invested under our fiduciary obligations. I’m a strong believer that if you don’t take ESG into account, you can’t deliver adequate returns for the long term.
That could mean ending up with stranded assets and not delivering what our investors deserve. We’re becoming a society where not only environmental but also social aspects play a significant role in investing – look at affordable housing, look at carbon offsets and insets, look at indoor farming. There are a host of examples that are really driving the business.
Do you think the discussion around investment returns versus ESG sustainability has changed significantly and it’s now almost impossible to separate those two things?
Absolutely. Nowadays, there’s no doubt that you want to invest in assets that will deliver sustainable returns for the long term, and that you’ll run into trouble if you’re not looking at the ‘E’, the ‘S’, and the ‘G’. Regulators are obviously driving this, especially in the EU where standards are particularly rigorous.
If our industry doesn’t take these standards into account, it’s going to experience significant problems. Second, investors have sustainability reports where they only want to feature assets that fit their ESG-driven criteria. Finally, there are tenants, whole communities and society at large applying pressure to invest sustainably. So ESG is a factor that’s driving the industry and drives our investing. You just can’t overlook it.
What are some of the key initiatives that you’ve been driving forward, both on decarbonisation but also social impact and purpose-driven investment? Which ones are you most proud of?
I believe real assets represent key contributors to solutions for very real problems, such as nature loss, rising inequality and, indeed, climate change. Decarbonisation has been a major issue identified by UN initiatives. Forests are obviously fantastic for carbon sequestration, so we’re seeing a lot of demand from institutional investors from all sectors – religious organisations, not-for-profits and also public investors – who are looking at carbon removal as a way to reach their zero emission goals.
Investments in timberland and agriculture provide some excellent solutions that make tangible contributions to ESG goals, but these real assets can’t do all the heavy lifting. We also have to work hard within our real estate and infrastructure portfolios to reduce our carbon emissions. All real asset investments depend on working collaboratively with local communities to deliver positive social impacts. In this respect, diversity, equity and inclusion have not been where the more traditional real assets have excelled in terms of progress. We’re working hard on that, and it’s something that requires improvement throughout the whole industry.
In your global role, are you seeing differences in either the approach or the attitude to ESG between European, Asian and North American markets?
There’s no doubt that ESG factors are very important to investors everywhere in the world, not just in Europe, as many Europeans may believe! It’s true that, on the regulatory side, Europe may be slightly ahead of other regions, but if you look at the GRESB contribution on the real estate and infrastructure side, it’s actually Asia that’s ahead of Europe here – these investors regard it as crucially important.
Most of our activities are in North America, and from what I’m seeing both in the US and Canada, sustainable investment is universally important. There might be slight differences with regard to regulations or investor appetite, but there’s no question that there’s growing demand for ESG-compliant investments in every region.
How is the parent company Manulife aligned with the real assets business?
Very much. My colleague Sarah Chapman is representing our financial corporation on the ESG side, where we’ve signed up to our zero emissions goals.
To give you one example, our timberland investment team has acquired a large portfolio in Maine for our insurance group, with the goal of sustainable investing to create carbon offsets. And the general account supports our initiatives with regard to indoor farming and renewable investments. We jointly acquired a renewable company in China to demonstrate that we’re very much aligned. Our insurance group is our biggest ally in achieving our ESG goals and we on the real assets side are at the forefront of trying to implement these objectives.
You’ve been responsible for a huge number of initiatives since you joined. What’s next on the ESG journey?
We created the real assets group when I joined about a year ago, and we’re seeing more and more cross-asset class activities.
If you look at indoor farming, it combines capabilities from both our infrastructure and agriculture teams, so that in combination with our infrastructure expertise is the future for some of our agriculture investments as they become more tech-driven. We’re moving into a situation where we can achieve our sustainability goals by using new tag digitalisation, for example. In more traditional industries, we’re looking at water supply and storage issues – we’ve just hired three water experts for our team.
We’re also seeing more and more solar and wind farms on our agriculture and timberland assets, and more solar panels are appearing on our real estate investments, so this is where combining our expertise in these asset classes can really help us.