Edition: Dec 2013- Feb 2014
RisCura Consulting guide to responsible investing
Regulation 28 puts responsible investing on trusteesí agendas and many are wondering where to start.
The first step is to realise that responsible investing is an approach, not a product. It is not an asset class that should be ring-fenced in a portfolio by investing in one of the many socially responsible investment (SRI) products available on the market. It goes deeper than this. Itís a way of considering all investments, and cuts across different investment mandates, asset classes and investment products.
Responsible investing integrates any factor that affects longterm sustainability, including environmental, social and governance (ESG) factors, into investment practice. Put simply, it is about balancing risk and return while considering the world and society in which they live.
The issue of returns
A common belief is that investing responsibly affects returns negatively. Yet every year, more and more international research demonstrates that responsible investing does not, in fact, result in lower returns.
In reality, responsible investing is being proven to affect fund returns positively because it calls for a deeper analysis of companies and their impact on markets and societies. This should result in better decisions and, more importantly, reduced risk by uncovering key issues that traditional number-based analysis can miss.
Retirement funds are in the perfect position to drive long-term thinking around responsible investing to parallel their longterm investment horizon. Retirement fund investing should not be about 3-month, 12-month or even 3- year returns; it should be about 10- 20-year sustainable returns. It is becoming increasingly apparent that sustainable long-term returns require the integration of ESG factors.
Where do you start?
Learn the regulatory frameworks on integrating ESG into
Document your plan on responsible investing in your investment
policy statement (IPS)
Ensure ESG expertise and focus is part of your process for
selecting investment managers
Check on proxy voting by your asset managers
Ask your investment consultant about their ESG focus
Incorporating ESG into investing shouldn’t be overwhelming
Malcolm Fair, RisCura