Whatever you call it – sustainable investment, responsible investment or ethical investment – the challenge for 2014 is not how to make niche funds mainstream, but how to make mainstream funds sustainable, responsible and ethical.
Financial trade outstrips all other trade 26:1. More than any other human activity, what we invest in shapes the world we live in. Financial centres determine the price of everything from your morning coffee to what you need to have accumulated in assets to afford a comfortable retirement. Supposedly sovereign countries are all provincial regions of the United States of Capital.
A significant portion of financial trade does not even have human oversight, as high speed trading attempts to gain advantage faster than we can conceivably compute. The effect on individuals, communities, countries and the environment have no influence on, or stake in, this automated trading. Profit maximisation is the only priority.
Specialist sustainable and ethical funds do a lot of the heavy lifting in providing capital for ventures addressing global issues – of between £9-22 billion depending on how you define the market. That’s between 1.2% and 2.9% of funds under management in the UK (£763 billion). To effect the required change globally we need between 10% and 30% to be invested sustainably. That’s £76-229 billion. It feels like an impossible goal.
Companies that are providing clean energy, clean water, clean industry alongside sustainable, resource-light supply chains, agriculture, forestry and fishing need investment. Social investment domestically and impact investment overseas can lift communities from depending on aid or charity to be self-sustaining. They all need investment, over charity.
This means building the hard-nosed economic case for sustainable investment for institutional investors. It means encouraging pension funds and sovereign wealth funds to commit to investment that is in the long-term interest of their pension contributors and citizens. And that includes the interests of society as a whole and the environment, as well as simply profit.
It means breaking down adviser and other intermediary resistance to discussing the sector and dispelling pervasive myths about fund performance and investor disinterest. It means reassuring private investors that sustainable investment doesn’t carry more risk, but significantly less. Climate change, overpopulation, resource scarcity and unfettered pollution are real and threaten all of us, regardless of wealth, age, gender or nationality. Arbitrary lines drawn on a map are no protection against global issues.
It means creating a regulatory environment nationally and globally that makes sustainable investment strategies the rule, rather than the exception. It means making the principles, processes and best-of-breed guidance of sector bodies such as the UN-backed Principles for Responsible Investment (PRI), the European Sustainable Investment Forum (Eurosif) and the UK Sustainable Investment and Finance Association (UKSIF) standard industry practice and adhered to. Naming and shaming those who transgress might be uncomfortable for some, but these standards cannot simply be a tick-box, public relations or greenwash exercise.
Transparency on investment strategies, all holdings, portfolio turnover, company engagement and charging structures will help clear up the opaqueness of the industry and increase investor trust. No one is perfect, but functioning markets need more equality of power between investors and investees so they can make informed choices.
The accumulation of wealth for wealth’s sake is shallow and meaningless. You cannot spend it when you are dead, and there can be nothing more shortsighted, unethical and selfish as investing in a way that reduces the life chances of future generations.
Measuring success solely on a financial scale recognises everything except that which really matters. We need investment that means prosperity for the many, not just for the few. We need investment that means we pass on a viable environment to future generations rather than degrade it. We need investment that protects and values humans, rather than exploits them.
This is not some romantic, idealistic view of what the future can be, but the commonly held view that we should be capitalism’s master, not its slave – or worse, its apologist or devotee. It has done more than any other economic system yet tested to create prosperity, but the cost has been far too high so far.
We hope that one day soon, all investment is sustainable, responsible and ethical. Unsustainable, irresponsible and unethical investment is humanity’s long defeat; its suicide note for future generations.
Join other enlightened investors and build a blue and green tomorrow, and walk away from the cold and timid souls who only ever see the virtues of wealth creation at any cost.