Roundtable

Responsible investment

Investing for impact Ethical investing is not what it was. The days of investors simply looking to dodge exposure to tobacco, armaments and oil companies are long gone. Ethical investing has evolved beyond avoiding industries that harm the world to one that looks to make a positive impact on society. Responsible investing, or an environmental, […]

August 2017

Investing for impact

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Ethical investing is not what it was. The days of investors simply looking to dodge exposure to tobacco, armaments and oil companies are long gone.Ethical investing has evolved beyond avoiding industries that harm the world to one that looks to make a positive impact on society. Responsible investing, or an environmental, social and governance (ESG) focused strategy, is moving into the mainstream.What would have once been dismissed by fund managers under pressure to pay members’ pensions is now seen as a driver of performance.Hermes is just one institution that is pushing a fund meeting ESG criteria, relating to areas such as carbon emissions, recycling, good employee relations, diversity and providing rewards to management that reflect the performance of the company.The Hermes Global Equity ESG Fund was launched in 2014 and in the past three years has generated a cumulative performance of 21.3% compared to the 16.7% recorded by the MSCI World AC Index. So ESG is changing the stock picking process.Those promoting ethical investing point to risk-reduction as an attraction, believing that avoiding badly behaving companies could create more sustainable portfolios.There are issues. A survey by BNP Paribas in May highlighted that although almost half of asset owners intend to double the value of their ethical investments in the next two years they have concerns that the quality of data and effectiveness of the analytical tools available could halt their progress.Performance has to be a core driver of an asset manager’s remit. If the return is not there then pensioners will not get their money. However, academic studies and individual fund returns are showing that a responsible investment strategy and a positive performance are not mutually exclusive.We brought together asset owners and managers as well as advisers to discuss how attitudes to responsible investing are changing and the impact ESG metrics are having on returns for pension funds. The debate starts below.

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