Voya Financial Steps Straight Into ESG Investing Debate

Voya Investment Management has become the latest signatory of the Principles for Responsible Investment pledge, stepping right into a hot debate about the role of environmental and societal considerations in retirement plan investing.

Voya Investment Management, the asset management business of Voya Financial, announced that it has become a Principles for Responsible Investment (PRI) signatory.

Leadership at the firm says the pledge supports the company’s burgeoning environmental, social and governance (ESG) program and “demonstrates the firm’s commitment to responsible investing.”

For context, the Principles for Responsible Investing is the main project of an organization of the same name. The group “works to understand the investment implications of environmental, social and governance factors and to support its international network of investor signatories in incorporating these factors into their investment and ownership decisions.”

The PRI acts in the long-term interests of its signatories, it says, and in the interest of the financial markets and economies in which they operate—and ultimately of the environment and society as a whole. The organization is independent and does not operate for its own profit; it engages with global policymakers but is not associated with any government; and it is supported by, but is not part of, the United Nations.

In signing the PRI pledge, Voya adopts the group’s six basic principles, which include the following: “We will incorporate ESG issues into investment analysis and decision-making processes; we will be active owners and incorporate ESG issues into our ownership policies and practices; we will seek appropriate disclosure on ESG issues by the entities in which we invest; we will promote acceptance and implementation of the principles within the investment industry; we will work together to enhance our effectiveness in implementing the principles; and we will each report on our activities and progress towards implementing the principles.”

While some voices have emerged in the last several months arguing that the use of ESG investing programs has growth too political in the U.S.—for example the American Council for Capital Formation’s (ACCF) challenges against both CalPERS and the New York City pension system—leaders at Voya say this move is coming at the behest of clients and is simply the right thing to do, financially and otherwise. 

“Increasingly, many of our clients are making ESG considerations in their investment choices,” notes Christine Hurtsellers, chief executive officer, Voya Investment Management. “To address this demand, we’ve developed our ESG investment program, and becoming a PRI signatory is a significant proof point to our commitment to responsible investing.”

Practically speaking, it is of course still unclear whether and to what degree signing the pledge will result in a change in Voya’s investing approach. As Hurtsellers explains, Voya Investment Management (and many of its partners and competitors for that matter) is already undertaking efforts across its investment platforms and strategies to “systematically enhance the consideration of ESG factors in the investment processes,” including providing new ESG data resources, education and training.

Drew Schechtman, head of ESG Strategy, Voya Investment Management, confirms the company is actively enhancing the consideration of ESG factors in the investment processes, developing ESG products, and implementing deeper investment stewardship activities, including engagements and proxy voting considerations.

For her part, PRI Managing Director Fiona Reynolds, says she welcomes this move: “We welcome Voya Investment Management’s commitment to looking at ESG as part of the investment cycle. Their recognition of how seriously clients are taking responsible investment is another welcome sign in the investment management sector.”

Like other advocates for ESG investing, Reynolds says ESG is really all about promoting long-term performance by managing newly emerging risks; it is not about playing politics with plan participants’ money. She argues that harsh critics, such as the ACCF, do not necessarily do full justice to ESG as a broad topic. Such critics define ESG as a foolish, sentimentally motivated privation—as the sacrifice of lucrative energy and oil company stocks because of irrelevant moral discomfort.

For a while the criticism made much more sense in the fiduciary institutional investing world than it does today. The earliest generations of ESG portfolios took the form of standard equity indexes with energy and other higher-waste sectors and stocks cut out. It’s a practice known as “negative stock screening,” and today much of the opposition to ESG is still caught up in this initial association with stock screening. This is despite the fact that the Department of Labor has modernized its stance and no longer requires that ESG factors be considered as nothing more than a potential tie-breaker by qualified retirement plan fiduciaries. As the DOL has directly acknowledged, ESG factors can be used in much more sophisticated and productive ways. For its part, ACCF agrees theoretically with this possibility in one part of its criticism, instead accusing New York City and California of failing to live up the real possibilities of modern ESG investing.