Responsible Investing
Responsible Investing
The sole pursuit of profit is no longer the unique objective of investors and lenders. In fact, nor is it the case for business owners either. In a capitalist society generating profits is crucial in order to allow economies to grow and populations to flourish and prosper. However, it is pleasing to note a growing trend towards what has become known as, “Socially Responsible Investing (SRI)” “Ethical Investing” or “Sustainability investment.”
The rapid acknowledgment and growth of factors, such as Environmental, Social and Governance (ESG) means corporate stakeholders are viewing companies in a new light. Questions are rightly being asked about what their wider role in society is. How are they adding value to communities? What are they doing to improve employee work conditions? Do they support any charities? Are they a force for good in the supply chain etc.
There are push and pull factors at play here. End consumers want to interact and associate themselves with organisations who they believe, “do good” and behave in a responsible manner. That is leading corporates to change their behaviour. At the same time, increasing amounts of capital are being earmarked for ESG mandated funds or investments that screen well when set against a list of criteria that are used to measure their appropriateness and thus qualify for these types of funds.
With respect to publicly traded companies on stock exchanges, Europe is considered to lead the way in terms of improving ESG credentials, followed by the US, then the Far East and finally Australia.
More and more, we as consumers and investors are choosing to shop with companies and invest our savings and pension funds in businesses that we believe are playing their part in making the world a better place. For example, the Vanguard FTSE100 Social Index Fund is c.$6bn in size and specifically excludes companies that do not meet the standards of U.N. Global compact principles and do not meet certain diversity criteria. It also excludes stocks that are involved in industries like fossil fuels, gambling and nuclear power. The companies it does invest in are the likes of Microsoft, Apple and Alphabet.
It is easy to think the SRI or ESG investment trend is just applicable to big companies but this is absolutely not the case. ESG funds that invest in smaller companies are rapidly growing in popularity.
In addition, banks are refining their own policies and offering new and differently/better priced products and loans to companies who can demonstrate adherence to certain ESG criteria.
There is an investment revolution underway. One that is being championed by governments, regulators, consumers and investors. It is relevant to us all, consumers and business owners alike. From the largest multi-national organisations to the smallest local grocery shops, from public companies to private, charities to pension funds, ESG investment is here and cannot be ignored.
Over the next 10-20 years we will arguably look back at this moment and view it as one of the most monumental and fundamental shifts in societies interaction with capitalism.
Good ESG credentials are not a nice-to-have but a must-have!