The sustainable investment movement has been described as an “irreversible trend” by Jeron Bos, head of global equity research at ING Investment Management.
Writing for Fund Web, he states, “The importance of responsible investing has increased substantially in recent years and is gradually entering the mainstream investment arena, set to become an irreversible trend.”
He accredits events such as the 2010 BP oil spill in the Gulf of Mexico and the Bangladesh factory collapse last year for rising awareness of environmental, social and governance (ESG) issues. These tragedies highlighted the link between profits and sustainability to investors.
As a result, the myth that excluding certain unethical industries or companies leads to underperformance has been disproven and this has been filtering down to investors.
“Many studies have shown that incorporating ESG factors improves the downside protection while potentially improving the upside as well, and in any event, it should improve the risk-return characteristics of an investment portfolio”, Bos writes.
One such study found that firms that invest in corporate social responsibility initiatives see less volatility in their stock prices, particularly during economic downturns. This means that the company, investors and the planet all benefit.
Bos adds that these pieces of research made “perfect sense” because the role of responsible investment is to look for sustainable business models.
He also comments on fiduciary duty, which is currently being defined by the Law Commission. The commission is looking at whether the law allows, and whether it should allow, investment trustees to consider non-financial matters such as ESG issues when making decisions.
“Inclusion of ESG factors should be perfectly in line with an asset manager’s fiduciary duty as well. Furthermore, integrating ESG factors can – and should – be seen as simply being a more complete approach to investing”, Bos argues.
ING Investment Management is a signatory of the United Nations Principles for Responsible Investment (PRI), which sets out best practices for incorporating ESG into investment decisions. The organisation argues that taking these factors into account allows their analysts to “unlock potential value by identifying opportunities and/or risks”.