GLOBAL - Socially responsible investment (SRI) portfolios did not provide a significantly better downside protection during the crisis, according to an SRI study by Pictet Asset Management.
This was in spite of the SRI community's warning all along against bad practices that were among the root causes of the crisis, such as dysfunctional incentives, unethical business conduct and bad corporate governance.
In a strictly financial sense, this prescience was insufficient to make SRI portfolios actually less risky.
Pictet's sustainability expert Christoph Butz said: "For too long, SRI investors have been made to believe that extra-financial research alone could shield them from market adversities - an assertion that is not borne out by facts.
"Something else is needed. To tilt environmentally, socially and governance (ESG)-screened portfolios toward more financial sustainability opens up an interesting perspective.
"The promise of lower risk and higher returns - both in the extra-financial and financial dimension - finally seems to be within reach."
The report - 'How to survive the next crisis: A new approach to Socially Responsible Investment, Spring 2011' - found that, for SRI to thrive and become the investment strategy of choice, it has to provide both sustainability and higher risk-adjusted returns.
It advises investors to identify sustainability in companies' financial fundamentals by integrating those factors that make companies more stable and resilient over time while delivering superior risk-adjusted returns.
Factors such as moderate asset growth, low leverage and concentrated ownership not only can secure companies' own survival, but also contribute to the stabilisation of financial markets and the economy as a whole.
As part of the report, Pictet tested the relative performance of the financially improved sustainability portfolios against their respective conventional MSCI benchmarks over the last decade.
The results were encouraging and confirm Pictet's hypothesis that optimising screened portfolios from a financial sustainability point of view can actually make them more resilient to losses. They also tend to outperform in most environments except, in the most vigorous market recoveries.
In other news, a report from GovernanceMetrics International (GMI) has shown that shareholder activists have had a great deal of success in pushing companies to stop using certain takeover defences that undermine shareholder rights.
The report - called 'Proxy Season Wrap-Up: Successful Activism Dismantles Takeover Defenses', which is available as a free download from the GMI website - provides an overview of trends in shareholder proposals related to takeover defences over the last three years.
Key findings include:
The number of shareholder proposals requesting shareholder action by written consent in lieu of a meeting increased from zero in 2009 to 32 in 2011, indicating an emerging target issue for shareholder activism
Finally, MSCI has launched its ESG Manager, an integrated online ESG research and analytics platform, designed to provide asset managers and owners with an integrated suite of tools to efficiently manage research and to provide analysis and compliance tasks across the spectrum of ESG factors.