For all the recent growth of responsible investment, there is still a lot more that investors can do to have a positive impact on the economy, environment and society, according to a new report from investment institutions with over $5 trillion (£2.96tr) of assets under management.
In The Value of Responsible Investment, 11 asset managers and owners from the Investment Leaders Group (ILG), a coalition brought together by the University of Cambridge Institute for Sustainability Leadership (CISL), attempt to define responsibility, and make “a moral, financial and economic case” for it.
Among them are Allianz Global Investors, Aviva Global Investors, Standard Life Investments, Zurich and PensionDanmark.
Though awareness is growing as the market expands, with the UN Principles for Responsible Investment (PRI) gathering over 1,200 signatories, the organisations argue that this is not enough.
“A business-as-usual economy continues to draw down on the world’s natural capital rather than living off its interest”, the report says.
Philippe Zaouati, chair of the ILG and CEO at Natixis Asset Management’s responsible investment brand Mirova, said, “In spite of a widespread rhetorical commitment to responsible investment principles, market dynamics remain preoccupied by the short-term, and the majority of investment does little to answer the challenges of our time.”
The report refers to UN estimates that say the cost of environmental damage caused by the world’s 3,000 largest companies added up to a staggering $2.15 trillion (£1.27tr) in 2008. It explains that these costs could soon appear on corporate accounts, with serious implications for investors.
Also, as it has been proven that investing responsibly does not mean sacrificing returns, the report continues, there is no justification for ignoring the moral case in favour of it.
“Five forms of responsibility justify different forms of responsible investment: non-maleficence justifies negative screening and engagement; beneficence justifies pursuing [environmental, social and governance (ESG)] aims as a proactive investment strategy; fidelity justifies attending to ESG concerns as a core duty to beneficiaries; reparation justifies compensation for dishonest selling or negligent investment; and gratitude justifies fairness towards beneficiaries”, it says.
The report recommends a number of actions investment institutions can take to maximise their sustainable investment opportunities. It advises investors to more thoroughly research the risks that environmental issues represent to their investments, to adopt a longer-term investment approach, invest more in cleantech and to promote non-financial reporting standards.
Jake Reynolds, director of business platforms at CISL, added, “In a world that neglects to account for social and environmental costs on corporate balance sheets – costs we know can ultimately impact value – responsible investment can be seen not only as a smart investment strategy but as an essential response to growing sources of systemic risk.”
Photo: Tax credit via Flickr