Recreating unity between investments and their impact
20 Dec 2017 - Estimated reading time: 3 minutes
Just over a week ago I attended the 22nd Local Authority Pension Fund Forum (“LAPFF”) Annual Conference. The purpose of this conference was to highlight the impact of responsible investment on company boards and asset management.
Two statements, from investment manager presentations, stood out for me;
“We played lip service to ESG.”
“We cannot divorce ourselves from the impact of our investments.”
The first statement was met with grumbles and shocked faces. I am in no doubt that the presenter was telling the truth and you had to respect their honesty. The fact is this happened. It still happens. This is why the work of the LAPFF, and other similar bodies, is so vital. The LAPFF can use their scale across the LGPS to lead collective shareholder engagement even when some asset managers are just giving ESG lip service.
Investors should be wary of managers that continually tell you they do everything they can to incorporate ESG into their investment decisions but cannot back it up with evidence. Talking about it is the easy part, demonstrating it takes more work. Recently, our own research to rate active equity managers on responsible investment has struggled to find clear, definitive evidence from managers.
Don’t be afraid to challenge and demand more from your managers to ensure they give you more than lip service or their marketing spiel.
The second statement is more profound, but hints at the insular nature of the financial services industry. Investors have become increasingly focused on financial return and have consequently become detached from the outcomes that their investment choices have. The truth is that investments have impact.
The conference married together a number of investment features and their impact:
It is clear from these examples that society, including pension scheme members, demands that investors recreate unity between investment choices and their impact. You cannot have one without the other. Investors need to avoid the trap of short termism and making a ‘quick buck’ at any consequence, and instead refocus their attention on long term performance and sustainability. By looking at investment choices through a lens of impact means investors can distinguish between opportunity cost (risk management) and opportunity (solutions and innovations).
I look forward to working with funds on their responsible investment journey to recreate unity between their investment choices and their ultimate impact.