Responsible investment still being viewed as detrimental to returns

Fiona Reynolds, managing director at Principles for Responsible Investment (PRI), has commented that whilst the responsible investment community is making the case for wealth creation whilst considering sustainability it is not translating into the amount of action needed.

Sustainable investment has gradually been gaining ground and research suggests that investors that consider environmental, social and governance (ESG) issues could be better off financially as well as helping communities and the planet.

Figures from the European Sustainable Investment Forum (Eurosif), published last month, revealed that sustainable investment in Europe has grown by almost 23% between 2011 and 2013, whilst impact investment went up by 132%. However, despite this impressive growth, sustainable investment continues to account for only a small portion of the investment market.

Writing in the Financial Times, Reynolds states, “It is widely acknowledged that factors relating to environmental, social and corporate governance issues have an impact on global economies and financial markets.

“ESG factors offer portfolio managers, for example, additional insight into the quality of a company’s management, culture, risk profile and other characteristics, allowing them to identify companies that are better managed, better at anticipating and mitigating risk, have a record of corporate responsibility and are focused on long- rather than short-term wealth creation.”

She continued that studies have shown that despite a growing interest in responsible investment it remains outside the mainstream for many organisations, pointing to a report from PRI to demonstrate this.

“The report found a number of issues which are preventing ESG from gaining traction,” Reynolds explained.

“The most overriding is the pervading notion that responsible investment is somehow incompatible with positive returns and therefore a neglect of fiduciary duty. There is a growing body of evidence which shows the opposite is true – over the long term, incorporating responsible investment strategies translates into outperformance.”

She added that this view may come from the fact that some organisations have a narrow view of responsible investment, believing it is solely about exclusions and divestment. Instead investment strategies can cover a variety of actions including positive screening and engagement.

In Blue & Green Tomorrow’s Guide to Sustainable Investment 2014 Reynolds commented that responsible investment is here to stay and moving in the right direction but that there was still a long way to go. She explained that in her opinion environmental issues will define our era and those that put in the effort to invest responsible will benefit in the long term.

Photo: 401(K) 2012 via Flickr 

Further reading:

Eurosif: European sustainable investment market outperforming the mainstream

Bringing social investment into the mainstream

Australian responsible investment funds outperforming the mainstream

Private equity industry adds weight behind responsible investment

The Guide to Sustainable Investment 2014