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Goldman Sachs Says Humans Beat Algorithms When It Comes to ESG

ESG might bring with it a revival of active management that will also encompass ETFs.


(Bloomberg) -- Goldman Sachs Group Inc. has found that successful sustainable investment decisions require a human touch that algorithms have so far been unable to match.

In Copenhagen, where Goldman is expanding to grab more of the cash-rich Nordic asset management market, smart environmental, social and governance investing calls are key to winning business. And as Nordic countries blaze a trail in all things ESG, whatever works in the region is likely to become a template for other parts of the world.

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

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

Goldman is adding 40% to its Nordic headcount, giving it better access to a savings industry that’s one of the world’s largest per capita. Investors in the region are among the most demanding when it comes to ESG, and asset managers are finding they have to adjust their offerings to win business.

“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.”

Two years ago, the picture was different, Konig said. Electronically traded funds were edging out more hands-on portfolio management, as part of a cost-saving drive amid ultra-low interest rates and in-tandem market moves. But with ESG investing requiring more human input, Konig says it’s likely to offer a lifeline to a profession plagued by job cuts in recent years.

Goldman’s experience suggests that ESG might bring with it a revival of active management that will also encompass ETFs. The bank has “an intense pipeline” of new products that it plans to unveil this year, particularly in fixed income, and Konig says 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 said.

Meanwhile, there’s an emerging risk of a labor shortage in the Nordic region’s finance industry. The organization representing Danish employers says banks and insurers probably will face a tough time finding suitable candidates for up to 8,000 jobs in the coming years.

Goldman expects to employ around 70 people in its Nordic offices by the end of the year.

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