A group of investment and pension fund managers have called upon investment firms to up their game when it comes to responsible investment if they are to maximise opportunities and improve long-term returns.
The report - The Value of Responsible Investment - says that with better reporting, research and a stronger tie between ESG and fiduciary duties, investment managers should take the lead when it comes to influencing the economy, environment and society.
It was backed by 11 investment managers with assets under management totaling $5trn (€3.6trn), making up the the Investment Leaders Group (ILG) of the University of Cambridge Institute for Sustainability Leadership.
The report says that responsible investment should be at the heart of fund strategies and processes. It also called for better research on the risks generated by environmental ‘megatrends’ and the drag on economic performance.
In addition, the report calls for standardised reporting for environmental and social impacts, as well more use of long-term mandates and a better alignment of ESG and fiduciary duties.
“While short-term investment strategies can play an important part in an asset owner’s portfolio, providing diversification and liquidity, they can also lead to asset mispricing, bubbles and consequent price crashes, undermining long-term economic development and investment,” the report says.
Philippe Zaouati, CEO at Mirova, and chair of the ILG, added: “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 said investment firms should also scale up capital allocation to the technologies, infrastructure and business models of a future low carbon, green economy. This would depend upon solid investment principles and clear enabling actions from policy makers.
Jake Reynolds, director of business platforms at CISL, said: “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.”
A report by Standard & Poor’s (S&P) recently also found that companies should do more to assess their climate event risks.
With extreme storms, flooding, heat waves and cold snaps, companies are under pressure to identify, quantify and disclose material risk related to such events.
Investors are starting to see the impact of carbon pricing on corporate profitability, but less attention is being paid to the effects of climate events on a company’s business and financial risk profile, S&P argued.
This ties in with the findings of the ILG report, pushing for companies and investors to take a closer look at responsible investment.
The ILG currently comprises 11 investment institutions: Allianz Global Investors, Aviva Global Investors, First State Investors, Loomis Sayles, Mirova (Natixis Asset Management), Nordea Life & Pensions, PensionDanmark, Pimco, Standard Life Investments, TIAA-CREF Asset Management and Zurich Insurance Group.