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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.
There are several key drivers for responding to this imperative:
By responding to this, your organisation could:
Strategy and Transformation
Reporting and Assurance