Investment Leaders Group (ILG) have created two new tools for investors to tackle short-termism and the lack of transparency in the financial sector. ILG is a group of investors brought together by the University of Cambridge Institute for Sustainability Leadership and include ten pension funds, insurers and asset owners. Short-termism is a focus on short-term projects and objectives that leads to immediate profit, but at the expense of long-term security.
The ILG have noted that short-termism is “regularly cited as a barrier to companies making more progress towards sustainable business practices.” To tackle this they created a toolkit of ten design features that will help to develop active equity mandates with varying strengths of “sustainability” integrated into them.
They see the future as more long-term responsible and sustainable investment (LTRSI) based, although they admit some parts of an asset owner’s portfolio will need to have a shorter-term outlook to meet certain liabilities or regulatory liquidity requirements.
By using and adjusting the ILG’s toolkit to suit their individual circumstances, investors could make a significant contribution to countering the negative business and economic effects of short-termism, and promote environmental and social sustainability.
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The long-term vision of the ILG’s work is “to shift the investment chain towards responsible long-term value creation, such that economic, social and environmental sustainability are delivered as an outcome of the investment management process alongside robust long-term investment returns.”
The framework of the second tool in the ILG’s report published today, uses the United Nations Sustainable Development Goals (SDGs) as a starting point, and simplifies them into a set of six impact metrics for investors.
The six impact metrics are: basic needs, wellbeing, decent work, resource security, healthy ecosystems and climate stability.
Through this tool investors can calculate and communicate their funds’ contribution to the “sustainability” metrics, which will allow their clients to understand their investments’ broader impact.
The report is targeted at a wide range of beneficiaries including: individual savers and investors, pension funds, insurance companies, family offices, sovereign funds and all other forms of asset owner. The idea is to empower these beneficiaries to decide whether their money is being invested in projects that resonate their beliefs and values.
The ILG want fund managers, consultants and investment platforms to use their framework to “form a clearer view of the impacts of asset choices, both to meet the expectations of clients and beneficiaries and to enhance their position in a growing market for responsible investment products.”
Their anticipation is that the details in their report will allow the financial services sector to build up trust with their customers through transparency, in a similar way other sectors, like food and energy, have.
To learn more about the ILG visit their website here.