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Podcast: COVID-19: European Regulatory Update for Asset Managers: 22 June 2020

Welcome to the fourth installment of Ropes & Gray’s European regulatory podcast for asset managers. These fortnightly podcasts and accompanying speaker notes are intended to provide an overview of updates relevant to GCs, CCOs and other compliance professionals to help you navigate both COVID-19 and other developments relevant to your business. The speakers on today’s podcast are Eve Ellis, a partner in Ropes & Gray’s asset management group specialising in fund regulation, and Rosemarie Paul, a partner in the firm’s litigation & enforcement group specialising in regulatory enforcement matters.

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Podcast: COVID-19: ESG Considerations for Asset Managers in Light of the Pandemic


Time to Listen: 4:46 Practices: Asset Management, ESG, CSR and Business and Human Rights, Private Funds

In this Ropes & Gray podcast, asset management partners Isabel Dische and Melissa Bender discuss how the COVID-19 pandemic offers an opportunity for asset managers to evaluate how their portfolio companies are managing the pandemic (and likewise for institutional investors to evaluate their asset managers). They’ll also discuss how investors may want to apply lessons learned from recent market events to their ESG programs going forward.

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Transcript:

Isabel DischeIsabel Dische: Hello, and thank you for joining us today on this Ropes & Gray podcast, the latest in our series of podcasts and webinars focused on topics of interest for asset managers and institutional investors. I’m Isabel Dische, a partner in our asset management group based in New York and co-head of our institutional investor practice. Joining me today is Melissa Bender, an asset management partner in our San Francisco office. As we suspect you’re aware, both investors and regulators have been paying increasing attention to the incorporation of ESG factors into asset managers’ investment processes. Today, we are going to be talking about how the COVID-19 pandemic offers an opportunity for asset managers to evaluate how their portfolio companies are managing the pandemic (and likewise, an opportunity for institutional investors to evaluate their asset managers). We’ll also discuss how investors may want to apply lessons learned from recent market events to their ESG programs going forward. Melissa, would you like to kick off our discussion?

Melissa BenderMelissa Bender: Thank you, Isabel. One silver lining to the COVID-19 pandemic and the challenges it has posed to so many businesses is that we’ve been able to observe many of those businesses’ crisis plans in action. Even within an industry, some issuers have been able to pivot their business plans and adapt to the crisis more readily than others. Indeed, one might posit that a company’s response to market events triggered by the virus serves as a real-life test of how they may handle future crises. Not surprisingly, some investors are already discussing factoring an assessment of how an issuer prepared for and handled the COVID-19 pandemic into their overall ESG assessment of a company’s ability to manage environmental, social and governance risks and opportunities.

The pandemic also has highlighted the importance of the “S” and the “G” in ESG, which can be harder to quantify as compared with environmental risks and opportunities. For example, recent government shutdowns have highlighted social factors that investors may want to factor into their investment analysis, such as paid time off, benefits and employee safety measures to ensure workers can operate during an emergency.

Needless to say, not all companies have handled the pandemic as successfully as an investor might have hoped. Where a portfolio company has been caught particularly unprepared, investors may want to initiate a dialogue about how they can be better prepared for similar crises in the future.

Isabel Dische: Much as an investor may want to speak with a portfolio company to better understand how they’ve grappled with the COVID-19 pandemic and what lessons can be learned for the future, investors may want to use this as an opportunity to understand how the asset managers with whom they’ve invested are handling the crisis. Watching events unfold also may add important factors to an investor’s ESG analysis. Did the asset manager’s investment processes identify key risks in the portfolio and/or ways to mitigate those risks? How has the manager been engaging with issuers? With the benefit of hindsight, how would you ‘grade’ the manager’s ESG policy, both on a stand-alone basis and as compared with other managers?

And much as this is an opportunity to evaluate portfolio companies and asset managers, it is an opportunity for investors to reassess their own ESG policies and priorities. What has worked, what hasn’t? What data was, or would have been, meaningful for the investor’s portfolio management?

Investors and asset managers alike may want to assess whether the pandemic is being used to hide or minimize other weaknesses at portfolio companies. For example, issuers may use this as a window for releasing bad news to the market, because it may not receive as much attention now as it would in the absence of the broader market turmoil. Investors and asset managers also will want to consider whether the pandemic is worsening other weaknesses at the portfolio company level.

Melissa Bender: In addition to evaluating the response to date, investors will also want to assess the ways in which portfolio companies engage with the return to work as “stay-at-home” orders approach expiration or are lifted. Employers must now evaluate the resumption of operations, including anticipating how to prevent the introduction and spread of COVID-19 as their employees return to the workplace. While various regulatory requirements will come into play, companies will universally have to engage with increased sanitation practices, the reporting of illness and related policies and procedures, and social distancing requirements which may significantly impact day-to-day operations. Other measures may also be appropriate, such as the provision and required use of personal protective equipment and COVID-19 testing of employees. Implementation of these measures presents complex questions, particularly in the context of testing, which requires evaluation of frequency and accuracy of such measures, not to mention employee privacy considerations.  

Isabel Dische: Needless to say, there’s a lot to consider. Thank you, Melissa, for joining me today for this discussion. And thank you to our listeners. For more information on the topics that we discussed or other topics of interest to the asset management industry, please visit our website at www.ropesgray.com. And of course, we can help you navigate any of the topics we discussed – please don't hesitate to get in touch. You can also subscribe and listen to this series wherever you regularly listen to podcasts, including on AppleGoogle and Spotify. Thanks again for listening.

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