Responsible investment

In the last ten years, responsible investment has evolved from being a primarily exclusionary approach to one focused on identifying companies that can effectively manage ESG risks and opportunities. The challenges put forward by global imperatives like the Sustainable Development Goals (SDGs) reflect that there are very specific regulatory, ethical and operational risks, which can be financially material across industries, companies, regions and countries. As a business, the approach to responsible investment is founded on the understanding that sustainability issues can and do influence long-term return outcomes. Issues such as resource depletion, climate change, poor governance and social inequality pose both investment and long-term systemic risks to society and the biophysical environment.

At some point in the future, a significant proportion of currently external costs such as environmental damage or social upheaval might be forced into companies’ accounts.

Large institutional investors relying on modern portfolio theory can be considered ‘universal owners’ - their highly-diversified, long-term portfolios are sufficiently representative of global capital markets that they effectively hold a slice of the overall market, making their investment returns dependent on the continuing good health of the overall economy. They can therefore improve their long-term financial performance by acting in such a way as to encourage sustainable economies and markets.

Issues you may be facing

There are several key drivers for responding to this imperative:

Asset managers need to embed sustainability into the core investment process to better understand the potential for companies to deliver their cash flows into the future.
Incorporation of ESG factors into our investment and ownership decisions to support the pursuit of superior risk-adjusted returns for our clients.
Subscription to the UN Principles of Responsible Investment and the Code for Responsible Investing in South Africa principles.
A growing need to incorporate social and environmental opportunities into an organisation's daily financial decision making.
Financial institutions are being requested to put in place policies on lending to carbon-intensive, fossil fuels activities, and to commit to a hard deadline for enhanced disclosures related to climate risk.
Incorporating ESG matters into deals strategy and execution.

By responding to this, your organisation could:

define an investment strategy that demonstrates the commitment to investing in long-term sustainable businesses. This positions investments made into those companies and portfolios most likely outperform because of genuine embedding of ESG issues into their values, strategy and performance;
provide more holistic assessment and measurement of how businesses generate value for its stakeholders who are relevant to the business; and
capitalise on opportunities to innovate products, to meet the growing ESG outcome needs of clients.