Turn your beliefs into a sustainable investment strategy

By: Craig Hughes, Mercer’s Head of Endowments and Foundations, Pacific

Australian not-for-profits and philanthropists are embracing sustainable investing as part of a global move towards more responsible or sustainable investing.

The local and global sustainable investment market has grown remarkably in the last three years as it has become more important for an organisation to align its investment program with its broader culture, ethics and beliefs. 

Sustainable development has been defined as meeting the “needs of the present without compromising the ability of future generations to meet their own needs.” Investment that considers sustainability isn’t about changing the world, it’s about understanding how the world is changing.

As an investment theme, sustainability aims to identify the growth opportunities of companies that provide solutions to challenges such as natural resource constraints, population growth and demographic changes, changes in public sentiment and the evolving policy response to a range of environmental and social issues. Sustainability-themed investment strategies generally focus on a range of sectors or companies whose products and services are specifically aimed at contributing to positive environmental and social development.

There is increasing academic and industry evidence that environmental, social and governance (ESG) factors can materially impact investment risk and returns. Sustainable investing can also protect or enhance an organisation’s reputation in a time of increased media and public attention. 

Source: An Investment Framework for Sustainable Growth, Mercer 

One of the newer areas of interest is the issue of divestment versus active ownership.

In the past, rejecting investments in sectors inconsistent with an organisation’s ethics was the primary way investors implemented a sustainable investment strategy. This is still the main approach for many investors concerned about specific ethical issues. However simply excluding areas such as tobacco, weapons and gambling could now be considered simply ‘fleeing the scene’. Grant makers and grant seekers should consider using their influence through engagement to motivate their investment managers and the management and boards of companies in their portfolios towards more sustainable practices.

Finally, an investment view that goes beyond traditional financial analysis and considers a wide range of risks and opportunities is more likely to create and preserve long-term investment capital. Increasing academic and industry evidence indicates that integrating ESG factors and active ownership into the investment process can materially impact investment risk and returns.

As long-term investors and fiduciaries looking to serve the community well into the future, it’s appropriate to consider this broader set of risks and opportunities.

Read the original article, Why Australian not-for-profits are embracing sustainable investing.

Aug. 25, 2015

 Tags: sustainable investment, investment, investing

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