A Commitment to Investment Values
The global financial crisis has caused many investors to change the way they allocate their capital. Prior to the downturn, many investors chased high returns; they considered the strategy of the portfolio or fund to be secondary. Since the crisis has subsided, however, many investors have taken a different approach. They are looking for ethical investment vehicles.
Many investors have come around to the thinking that environmental, social, and corporate governance (ESG) issues can affect fund performance. They believe that if they invest in companies focused on these issues, then they are selecting to invest in better-managed, more innovative companies that are better positioned than their less enlightened competitors to deliver long-term performance.
At the same time, they believe that companies focused on ESG issues are more ethical than companies focused solely on profitability. In fact, ESG funds are drawing investors’ attention to the downsides of greed and fraud that many funds might overlook.
The CIO of Australian super fund recently stated, “Good responsible investing, [that considers] additional non-financial issues (including ESG issues), mitigates against the risk of corporate scandals, fraud and potential litigation against a company. The community’s recognition of a genuine commitment to corporate governance can enhance the reputation of the company and raise general confidence.”1
A good example of a new ESG investor is a pension fund in the Netherlands. It has a portion of its assets dedicated to ESG funds. The pension fund wants to hear from equities funds that focus on ESG or socially responsible investing (SRI). It will look at funds that invest in developed areas as well as emerging market regions. However, it wants management teams that have substantial experience in ESG investing. [Okay to say "new ESG investor" in first sentence?]
ESG funds will be an area that BHA will monitor going forward. Ethical and responsible investing is in its infancy and has the potential to be a popular choice among alternative investors.
1 SuperReview, “Socially responsible investments earning their keep,” July 19, 2010, http://www.superreview.com.au/article/Socially-responsible-investments-earning-their-keep/520244.aspx.