What is Responsible Investing?
A growing focus for many investors is the area of Responsible Investing and the consideration of Environmental, Social & Governance (ESG) factors in their investments.
Within the investment sector, there is also a clear recognition of the importance of ESG factors in terms of delivering sustainable longer-term returns for investors, particularly around key macro themes such as climate change, sustainable infrastructure and natural resource conservation, which may have an impact on all assets into the future.
ESG investing is sometimes referred to as sustainable investing, impact investing, or socially responsible investing.
Principles for Responsible Investment (PRI)
In early 2005, the then United Nations Secretary-General Kofi Annan invited a group of the worlds largest institutional investors to join a process to develop the Principles for Responsible Investment (PRI). A 20-person investor group drawn from institutions in 12 countries was supported by a 70-person group of experts from the investment industry, inter-governmental organisations, and civil society. The Principles were launched in April 2006 at the New York Stock Exchange. Since then the number of signatories has grown from 100 to over 3,000.
The PRI defines Responsible Investment as “an approach to investment that explicitly acknowledges the relevance to the investor of environmental, social and governance factors, and of the long-term health and stability of the market as a whole”.
Can ESG investments deliver returns for investors?
While responsible investing is considered laudable, it is also sometimes viewed as coming at the expense of returns for investors. Nowadays however, many asset managers do not think this is the case and believe that they can adopt ESG metrics and yet still maintain investment returns.
For some fund manager’s, it is a strategic issue so much so that it is a core pillar of their business strategy. ESG is a set of criteria used by investors to assess the sustainability of an investment and is increasingly playing a greater part in decisions around where capital should be invested, such as in companies that can prove they have sustainable business practices, including climate-friendly practices or stronger corporate governance practices.
”Investors are increasingly at the forefront of efforts to address sustainability challenges, directing capital to projects and companies working toward a more sustainable global economy, and protecting their own portfolios from sustainability risks”.
ESG from an Irish Fund Manager’s Perspective:
In an Irish context, one of the largest fund manager’s here operates a holistic 3 pillar approach which covers exclusion, integration and active ownership, all of which consider climate change as a key factor.
- Exclusion: They will be excluding some companies from their investments where their conduct breaches well established globally accepted standards or where their business model centers around activities which investors feel are not consistent with a sustainable economy in the future.
- Integration: They will include ESG factors into their investment decision making, considering them alongside other traditional factors from a risk management perspective.
- Active Ownership: They will use their shareholding sustainable business practices through voting and direct engagement and dialogue.
Building long-term financial security for our clients
At Heritage Wealth, we strongly believe we have a responsibility to create long-term sustainable returns for our clients and that incorporating environmental, social and governance (ESG) factors can have a positive impact on the performance of our clients’ investments.
We underpin our approach with the same rigour and analysis as any other investment process. Our aim is to materially improve the sustainable characteristics of our investment strategies, while maintaining the risk and return profiles within investor portfolios.
Gerard O’Brien LL.B LL.M CFP® QFA is a Certified Financial Planner and the Owner of Heritage Wealth Management, a Financial Planning practice based at 27 Cook Street, Cork.
For more information, contact Gerard at email@example.com www.heritagewealth.ie
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