GLOBAL - The growth of socially responsible investment (SRI) in recent years has been overshadowed by the financial industry being more irresponsible than ever, attendees at the TBLI (triple bottom-line) Conference 2010 heard.

Speaking at the conference in London, Peter Michaelis, head of sustainable and responsible investment at Aviva Investors, said: "The paradox is that, over the past 10 years, we have seen huge growth in SRI assets, and yet the financial industry as a whole over the past decade has probably been less responsible than it ever has been.

"Look at the triple bottom line - every major environmental factor has gotten worse and is getting worse to an extent, whether it is forestry or climate change.

"Poverty in Asia has improved, but the financial crisis has put vast numbers in a much more difficult situation, and the Millennium Goals will be missed.

"Our industry is supposed to be excellent at allocating capital sensibly, but it has been a total disaster. We managed to bankrupt the banks, sections of society and indeed whole countries, so, in that regard, the financial industry has become much less responsible."

At the same, Michaelis pointed out that - through the experience of companies such as BP, Lehman Brothers, Citigroup and GM - it has become much clearer that environmental, social and governance (ESG) issues are important to investment returns.

"The challenge we face is integrating ESG issues into valuation and making the right capital allocation decision," he said.

Aviva Investors integrates sustainability by identifying which ESG factors are material to the asset class in question.

"There is a variety of degrees of importance depending on particular areas," Michaelis said.

"It is too simplistic to say climate change is a big E factor - therefore, we cannot invest in anything to do with coal mining. This might be true in 30 years' time, but it is not a meaningful investment horizon for most of our clients.

"For most asset owners, the time horizon for ESG financial integration is between 18 and 24 months."

Another crucial issue affecting the integration of ESG into institutional portfolios is the clarity and construction of mandates.

Donald McDonald, trustee director of the UK's BT Pension Scheme, said: "The truth of the matter is that our behaviours as asset owners do not necessarily contribute toward long-termism because we have traditionally put too much emphasis on returns.

"We have had the wrong manager incentivisation process in place and, above all, we have not been clear in our mandates about what we want from them."

Remy Briand, managing director global head of ESG and index research, added: "Asset owners also need a mechanism to measure what their asset manager is doing. In the traditional space, it is the management return and investment risk.

"The equivalent in the ESG space would also be to measure the risk, but as of today, this has not been systematically implemented by asset owners."