Leading investment institutions make case for responsibility

There is significant untapped potential for investors to exert a positive influence on the economy, environment and society, by practising responsible investment, according to a new report titled ‘The Value of Responsible Investment - The Moral, Financial and Economic Case For Action’ from eleven leading investment institutions with over US$5 trillion (c.€ 3.66trn) assets under management.

The institutions, which include asset managers and owners, are part of the Investment Leaders Group (‘ILG’), a three-year project to “help shift the investment chain towards responsible, long-term value creation”, such that economic, social and environmental sustainability are delivered as an outcome of the investment process alongside satisfactory, long-term investment returns.

Hosted by the University of Cambridge Institute for Sustainability Leadership (‘CISL’), the group is supported by financial economists at the Cambridge Judge Business School. Jointly conceived by the University of Cambridge and Natixis Asset Management, it is championed by an influential group of investment managers and asset owners comprising eleven investment institutions including Allianz Global Investors, Aviva Global Investors, Mirova (Natixis Asset Management), Nordea Life & Pensions, PIMCO, Standard Life Investments and TIAA-CREF Asset Management.

The extensive 68-page report warns that today’s economy continues to “draw down” on the world’s natural capital rather than living off its interest. In particular it identifies a need for strong and collective leadership from the investment industry and argues that there is a “moral, financial and economic case for action”.

Philippe Zaouati, CEO at Natixis Asset Management’s responsible investment brand, Mirova, and Chair of the ILG, commenting said: “In spite of a widespread rhetorical commitment to responsible investment principles, market dynamics remain pre-occupied by the short-term, and the majority of investment does little to answer the challenges of our time. The ILG seeks to change this, first of all by defining the value of responsible investment and then working out how to promote it.” 

The report specifically outlines actions that investment institutions can take to maximise the opportunities of investment that seeks to create environmental, social and governance benefits.

These include: (1) Commission targeted research on the degree to which the risks generated by so-called environmental ‘megatrends’ are placing a drag on economic performance, limiting future returns; (2) Pursuing a range of tactical opportunities to support responsible investment (e.g. standardised reporting on environmental and social impacts, long-term investment mandates, and demonstration of alignment between fiduciary duty and ESG integration; and (3) Scaling up capital allocation into the technologies, infrastructure and business models of a future low carbon, green economy.

Dr Jake Reynolds, Director of Business Platforms at CISL, added: “In a world that neglects to account for social and environmental costs on corporate balance sheets - costs we know can ultimately impact value. Responsible investment can be seen not only as a smart investment strategy but as an essential response to growing sources of systemic risk.”

The report includes input and chapters from Carlos Joly (‘The Moral Case: Why I Invest Responsibly?’), as well as from Rob Lake (‘The Investment Case for Responsibility’) that looks at how investors create value in the face of sustainability risks and opportunities, and Farzad Saidi (‘Unravelling Responsible Investment: A Literature Review’) that includes an examination of future research needs.