GLOBAL - The concept of socially-responsible investment (SRI) is dying, according to Jon Williams, a partner at PricewaterhouseCoopers, although he admits the models of negative and positive screening and engagement could remain valuable for certain types of investors.
Investors are instead beginning to understand the underlying thematics in the environmental, social and governance (ESG) space where value is created, he argued.
"Sustainability has held up reasonably well during the downturn," said Williams, who was speaking at the Allianz Global Investors workshop entitled Global Warning: Sustainable investments in times of polar and financial meltdown, in Dublin last Thursday.
"But if you look at the FTSE4Good as a benchmark SRI index, it has actually not performed that well," he said." If you remove things like alcohol, tobacco and defence from your portfolio the chances are in a downturn you will underperform. But thematic funds, such as the global climate change index and the S&P global water index, have outperformed through the downturn, against SRI. And so the growth will be in thematics, in climate change, in water, in forestry," added Williams.
He claimed clean tech investments have had a pretty rocky ride over the last two years, particularly after investments fell off a cliff in the second quarter of 2008. Williams attributes the underperformance of clean tech stocks during the financial crisis to their reliance on a leverage model, meaning that with no debt available they were not able to expand as quickly as possible, which impacted on their valuation.
"It might be a slightly rocky road along the way but I believe these companies will outperform the index in the next 10 to 20 years," he said. "I expect higher returns from investing in sustainability and predict volatility will fall, as technologies mature and regulators become more certain."
Commenting at the same event, Philippe Dutertre, president of the board at French AG2R La Mondiale, conceded: "There is still a long way to go before SRI becomes a mainstream investment. But if you think responsibility is too expensive try irresponsibility."
AG2R La Mondiale is an insurance and supplementary pension provider created earlier this year through the merger of AG2R and La Mondiale.