Three and a half years after the global financial crisis began, an outbreak of common sense.
Last month Britain’s Financial Times newspaper noted the success of market-oriented s0lutions that reverse the normal question, ‘Will it improve our bottom line to take account of environmental/social/governance, or ESG, when investing?’ That is a complex question depending, among other things, on the time frame of the investment.
Funnily enough, the question becomes more pressing in the minds of institutional investors when it is simply asked the other way around: ‘Would you put your money in a company with a high risk of crisis?’
This approach has been adopted by a new index in Brazil, the Novo Mercado. It is a segment of Sao Paolo’s BM&F Bovespa stock exchange that is restricted to companies that commit themselves to high corporate governance standards and - surprise, surprise - companies listed on the index outperform their peers.
Unfortunately, despite the events of the last few years, many in the financial industry remain focused on shorter-term results and still remain uninterested. Sigh.
Personal investors, meanwhile, continue to put their money into responsible investment vehicles. 2010 saw the number of responsibly invested financial adviser-managed portfolios increase by 50% in Australia.
The most widespread ESG standards are the United Nations backed Principles for Responsible Investment (PRI). In my view they are phrased in vague language that leaves a large amount of wriggle room. For example you won’t find a statement as specific as “we will ensure our suppliers pay a living wage”. Instead it commits signatories to “ask”, “engage” and “develop” responses. Nonetheless the Principles will pull people in the right direction and make it that bit harder for companies to pretend they know nothing about labour or environmental abuses in their supply chain.