Responsible investing is becoming the new normal
Sustainability is attracting ever-greater public attention. The topic already ranks highly on the legislative agendas of most governments, especially since the groundbreaking agreement reached at the Paris climate talks last year. This growing public awareness of sustainability signals an important shift in global priorities. It is pushing consumers, governments and business leaders to pay more attention to environmental, social and governance issues than ever before. This shift will also have a fundamental impact on the way companies are run and perform.
The Volkswagon emissions scandal is just one example of how the management of social and environmental issues can have a deep, bottom-line impact for corporate performance. Although the extent of the financial and strategic ramifications on Volkswagen are still unfolding, the scandal has already led to a $25bn (£17.2bn) loss in market value, the prospect of over $90bn (£62bn) in US fines, and a corporate reputation in tatters. Such examples demonstrate clearly that a company’s management of key ESG topics can have a very direct impact on the firm’s competiveness and long-term profitability. It therefore comes as little surprise that more investors today than ever before are integrating key ESG metrics into their investment analyses.
This growing investor focus is perhaps most evident in the rapid growth in signatories to the United Nations-sponsored Principles of Responsible Investment (PRI). PRI signatories commit to “incorporate ESG issues into their decision-making and ownership practices and so better align their objectives with those of society at large.” Today, over 1,300 asset managers have become signatories, representing over $60tn (£41tn) in assets under management. These asset owners include heavyweight investors like Blackrock, PIMCO, KKR, Partners Group, and Goldman Sachs, suggesting that the integration of ESG analysis into the investment process has already entered the investment mainstream.
