Not all profits are born equal. This simple view was put forward by Towers Watson’s global head of investment content Roger Urwin as he unveiled the consultancy’s latest research project, Telos, conducted in conjunction with Oxford University.

The accompanying report, ‘We Need a Bigger Boat - Sustainability in Investment’, offered a frank assessment of how institutional investment approaches need to change, despite the tongue-in-cheek title referencing Steven Spielberg’s classic film, Jaws.

Stressing that it was a personal rather than professional opinion, Urwin noted that some profits would inevitably be generated at the expense of others, and that this particularly applied to the banking sector.

Discussing the headwinds facing environmental, social and governance (ESG) investment in the UK, he said the “misrepresentation” of Cowan vs Scargill had a lot to answer for. The court case is often cited as restricting responsible investment, as the trustee must always act to maximise returns.

Emma Hunt of Towers Watson’s sustainability investment team said she was less sure about the impact of the 1985 court case, questioning whether it was still “relevant”. She cited the example of a large health insurance company that was, for the first time, debating the possibility of an investment strategy that focused on returns outside of funding liabilities.

“They are not constrained by Scargill and pension trustee rules, but they are going to have exactly the same type of debate,” she said. But she added that the likely outcome would only be shifting closer to a new policy, rather than implementing it. “I would actually question whether [the influence of] Scargill is as strong as it’s traditionally been quoted, or whether there are some deeper reservations.”

Urwin noted that the larger investors actively engaging with ESG and long-term mandates - which he suggests could be benchmark-based but measure outcomes with so-called extra-financial factors - often make allowances for such investment in their guidelines. “A good example would be organisations like PGGM and APG that work over certain pension plans that have a dual mission, unheard of in the UK.”

Urwin was questioned about the benefits of such long-term mandates, with some of the initial investors convinced of their benefits about to celebrate a decade with the same manager, as recommended by Towers Watson.

He said the lower turnover approach that was key in this longer-term mandate also meant that around 35 basis points was gained over a typical equity portfolio.

He argued that Indra Nooyi, chief executive of food giant PepsiCo, approached the company’s ethical responsibility from the right perspective by insisting on the mantra “profits with purpose”. “Some companies are trying to do this thing a particular way, progressively, taking account of the cost they are actually producing for others - that’s what externality is all about,” he said.

Towers Watson believes its cause will be aided by the recent publication of John Kay’s review on long-term equity investing. “Kay is actually encouraging a re-interpretation of fiduciary duty,” Urwin said. “Exactly what is meant by ‘fiduciary duty’ seems to be a worthy discussion - again, it is going to be country by country, to some extent.”

However, the pursuit of profit above all else remains an overriding theme in many investment environments, regardless of trustee arrangements.

There is still an assumption that the only sound investment is the one that places returns on a pedestal - even if research indicates that ESG-based investing will often, if not outperform, at least equal traditional benchmarks.

The struggle for a more sustainable, long-term, less benchmark-based approach will continue to be an uphill battle.