Published

Consumer behaviour is constantly evolving; disruptive trends affect all types of industries, and the “Investment World” proves no different. Investors are becoming increasingly interested in understanding how their investment returns are generated: the impact that the source has on the environment and society, and the business practices that derive these returns. This new level of awareness has led to a wide-spread shift in investor mindset, which is affecting all parts of the financial services industry.

Evolutionary solutions

However, is corporate behaviour evolving to satisfy the conscious investor? In 2006, the introduction of the United Nation’s Principles on Responsible Investment (UNRPRI) led the way to greater transparency through the requirement of corporate disclosures on a whole host of different standards. Primarily, the UNPRI seeks to create a shift in the fundamental outlook and impact of investing in relation to a range of Environmental, Social and Corporate Governance (ESG) factors. To date this has led to over 3000 investment signatures, pledging to introduce solutions or amend existing investment practices to align to and uphold these principles.

This shift is seismic, with major rating agencies now incorporating ESG into their company credit ratings. Corporates are getting wise to the fact that ESG factors, ignored by historical financial analysis, have increasingly significant financial relevance. A study published in 2015 by the Journal of Sustainable Finance & Investment (Friede, Busch and Bassen) found considerable evidence for a business case for ESG investing. This type of research has naturally led to a further increase in interest for ESG-led investment analysis.

There is no doubt that Socially Responsible Investing has evolved greatly from the early days of simply just avoiding traditional “sin sectors”. ESG analysis is now commonplace, leading to some tangible benefits: mitigating litigation risk, improving resource efficiency, and reducing borrowing costs, to name only a few. Add corporate inclusion within global initiatives such as the UN Sustainable Development Goals and the Paris Climate Agreement to the mix, and it is clear that corporate activity and practices are being reshaped and redefined like never before.

“We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten.” Bill Gates

Matching values with returns

Ethical Investing, ESG Integration, Sustainable Investing and Impact Investing are all types of investment approaches that sit under the Socially Responsible Investing umbrella. There is no universally accepted application for each of these approaches, and there is a wide variety of methods used to implement them across the various asset classes. But what option will best serve this growing market of socially responsible investors?

We know that understanding and clarifying an investor’s investment objectives is one of the cornerstones of sound financial advice. However, with differing approaches and definitions, it is important to look “under the bonnet” of the investment strategies which seek to meet an investor’s objectives.

Achieving the dual objective of a targeted return and adhering to the investor’s personal values, yet still maintaining the desired risk level, is a challenge. To take on this challenge, transparency is essential, and making your own assessment of the investment process undertaken to meet this dual objective is vital.

With the evolution in consumer demand and a widespread change in corporate behaviour, Socially Responsible Investment is moving more into becoming mainstream, but it won’t all be plain sailing. There will be unique challenges on the horizon, and successfully translating investors’ objectives into outcomes requires significant expertise.

Mike Myers
Investment Manager, Head of Socially Responsible Investing (SRI)

 

Investment Risks:

If you are in any doubt whether any of the investments contained in this communication are suitable, you should speak to your Investment Director, or take appropriate advice from a professional adviser, such as an accountant, lawyer or Financial Adviser authorised and regulated by the Financial Conduct Authority.

  • The value of investments and the income from them can fall as well as rise. An investor may not get back the amount of money that he/she invests. Past performance is not a guide to future performance.
  • Foreign currency denominated investments are subject to fluctuations in exchange rates that could have a positive or adverse effect on the value of, and income from, the investment.
  • Investors should consult their professional advisers on the possible tax and other consequences of their holding any of the investments contained in this publication.

©2020 Psigma Investment Management. This communication has been approved and issued by Psigma Investment Management. Psigma Investment Management is a trading name of Punter Southall Wealth Limited, which is authorised and regulated by the Financial Conduct Authority. Registered in England and Wales No. 5374633. FCA Registration No. 478840. Registered office: 11 Strand, London WC2N 5HR. A Punter Southall company.

Related Articles