ESG factors growing as investment criteria
The last 10 years have seen a change in companies’ understanding of how environmental social and governance (ESG) factors affect their business operations. And many companies have placed these factors high on their priority lists.
For their part, large investors have increasingly developed public responsible investment strategies and are now more open about how they are implementing them, in many cases through signing up to the UN Principles of Responsible Investment, a framework that enables investors to consider environmental social and governance issues when making investment decisions. It has been very successful, with 573 signatories to the PRI representing some $18,000bn in assets.
This week, UNPRI announced that it was getting tough. Five investors who failed to report on their activities have been delisted for having failed to respond to its annual survey on their implementation of the principles, apparently treating the principles as brand-enhancements, rather than commitments.
It is easy to be cynical about these changes. The UNPRI themselves are full of caveats and protections against having to make different investment decisions. “Where consistent with our fiduciary responsibilities” goes the preamble. And it is also easy to claim – as one fund manager this week did - that “there is absolutely zero evidence that investors will see better performance using an SRI strategy”.
Nonetheless there have been a number of counter balancing events, also this week. Norway's $400bn sovereign wealth fund, the world's second largest, has overhauled its investment strategy to increase its exposure to environmentally responsible companies in an effort to combat climate change.
And there are a growing number of Asian pension funds that have already adopted ESG guidelines. Pension funds in Asia are set to post unprecedented growth in coming years as they seek to meet the retirement income needs of rapidly growing and ageing populations. It is estimated that the number of people in the region aged 65 years and over will more than double between 1995 and 2050. For many larger companies, Asia is already on the road show schedule.
So as IR teams consider their outreach and communications to investors, telling not only the equity story – but the ESG story as well - becomes essential.
For their part, large investors have increasingly developed public responsible investment strategies and are now more open about how they are implementing them, in many cases through signing up to the UN Principles of Responsible Investment, a framework that enables investors to consider environmental social and governance issues when making investment decisions. It has been very successful, with 573 signatories to the PRI representing some $18,000bn in assets.
This week, UNPRI announced that it was getting tough. Five investors who failed to report on their activities have been delisted for having failed to respond to its annual survey on their implementation of the principles, apparently treating the principles as brand-enhancements, rather than commitments.
It is easy to be cynical about these changes. The UNPRI themselves are full of caveats and protections against having to make different investment decisions. “Where consistent with our fiduciary responsibilities” goes the preamble. And it is also easy to claim – as one fund manager this week did - that “there is absolutely zero evidence that investors will see better performance using an SRI strategy”.
Nonetheless there have been a number of counter balancing events, also this week. Norway's $400bn sovereign wealth fund, the world's second largest, has overhauled its investment strategy to increase its exposure to environmentally responsible companies in an effort to combat climate change.
And there are a growing number of Asian pension funds that have already adopted ESG guidelines. Pension funds in Asia are set to post unprecedented growth in coming years as they seek to meet the retirement income needs of rapidly growing and ageing populations. It is estimated that the number of people in the region aged 65 years and over will more than double between 1995 and 2050. For many larger companies, Asia is already on the road show schedule.
So as IR teams consider their outreach and communications to investors, telling not only the equity story – but the ESG story as well - becomes essential.
posted by Mark Hynes @ 1:26 pm
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