ESG | Opinion
Land of confusion
Another survey, a different result. Mark Dunne discusses why there are so many mixed messages when it comes to sustainable investing and returns
It appears that those campaigning for more private capital to fund the transi- tion to a low carbon future have a lot of work to do.
The message is not getting through to pro- fessional investors that helping to fight cli- mate change, provide access to fresh water or ensuring safe working practices improves investment returns. In fact, the majority (52%) of those ques- tioned in a recent survey of investors across Europe said they believe returns would have to be sacrificed if they were investing responsibly.
If professional investors do not believe it then why should pension scheme mem- bers who put collecting their benefits every month as their top priority. Of course, people will point to plenty of other surveys that put the vote in the other side’s favor, but it is interesting that with such a huge push from academia, the
financial services industry and now the government a large proportion of those who invest other peoples’ money for a liv- ing have not bought into the argument. This reason for their lack of confidence could be quite simple: if you are responsi- ble for ensuring that thousands of people don’t run out of money and spend their final years living in poverty it is under- standable that you would be cautious about a new investment style, which many could label a “fad”.
It would take more than a few surveys for pension scheme trustees to adjust their investment philosophy. The ones that I have met are a cautious bunch and asset managers have told me that getting them to understand and adopt a cash-flow driven investing (CDI) strategy was hard enough. It could also be dismissed as nothing more than propaganda by those concerned about climate change and who would like to see
more diversity in corporate leadership. The argument for responsible investing has changed. It used to be a way to reduce investment risk. Now it does more than that, it could even generate higher returns. Note the use of the word “could”. However, these sceptical investors are not against using capital to make a difference. They would accept a 2.4% loss if they were make a sustainable impact in their portfo- lio, but this is as far as they are willing to go. The fact is that these are still early days for responsible investing as an investment style. We still do not have a universal defi- nition of what an ESG-compliant invest- ment is, which makes it difficult to meas- ure the non-financial performance of an investment. Then there are track records, which, especially in fixed income, do not stretch back far enough when compared to mainstream equity strategies. The point is that sustainable investment strategies are likely to be around under one name or another for quite some time to come. The problem is that they have not been around for long enough to be consid- ered a mainstream investment style. More clarity on how such investments can be identified and measured is needed.
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32 | portfolio institutional | October 2019 | issue 87
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