Responsible investing is the new normal

Building environmental, social and governance (ESG) considerations into the transaction life cycle or investment process across all asset classes is fast becoming the new normal – so agree 300 of the world’s leading asset managers and owners who attended

This corroborates the thinking outlined in the World Economic Forum’s 2012 Global Risks Report, which highlights issues such as food security, water shortages, carbon change, carbon emissions, and health and safety as just a few of the myriad issues that will have some form of impact o­n each of us and for generations to come.

According to Jon Duncan, ESG Analyst at Old Mutual Investment Group SA (OMIGSA), within the global investment arena there is a deepening understanding that, socially, environmentally and biophysically, ours is a world in transition, and that this growing awareness is eliciting a considered response from the industry and, as a result, ESG issues are finding their place in the mainstream.

Duncan, recently returned from presenting at the Rio gathering, steers OMIGSA and the Old Mutual Group’s approach and journey to integrating responsible investment across the business. He is upbeat about recent progress, especially in light of the fact that Old Mutual plc is now signatory to the United Nations Principles for Responsible Investment in its capacity as an asset owner. Says Duncan, “This commits Old Mutual to a definite journey of incorporating the precepts of responsible investment into its business processes, and OMIGSA, by virtue of the fact that it is a member of the Old Mutual Group, is a captive signatory as an asset manager.” This further strengthens OMIGSA’s already firm commitment to the total integration of ESG issues into its analysis and investment processes.

There is growing evidence to support the validity of this commitment, such as Deutsche Bank’s June 2012 report: ‘Sustainable Investing: Establishing Long-term Investment and Performance’ of which the opening comment of the executive summary states: “We believe that ESG analysis should be built into the investment process of every serious investor, and into the corporate strategy of every company that cares about shareholder value. ESG best-in-class focused funds should be able to capture superior risk-adjusted returns if executed correctly.” – Mark Fulton, Managing Director and Global Head of Climate Change Investment Research

“OMIGSA has made good progress in this regard, especially in the listed equity arena, where we conduct a three-fold approach to ESG integration, namely, macro-thematic research, peer-to-peer fundamental analysis and qualitative analysis of a company’s reporting and disclosure,” explains Duncan.

“In addition, we have recently published OMIGSA’s Responsible Ownership and Proxy Voting policies o­n our website. The former addresses our approach to responsible ownership and how we engage the management of investee companies as to their incorporation of ESG-related risk and opportunity into their business strategies; the latter outlines our approach to proxy voting and how we disclose these, at a public level as well as full disclosure to clients, o­n request.” Duncan points out that these documents are living documents and stakeholder feedback is welcomed.

Duncan continues, “Viewing the world through a sustainability lens really does reveal new opportunities for growth, and the fact is that this is primarily within the unlisted investment arena and arises in sectors such as energy, transport and healthcare. In the listed equity space, the big focus is o­n identifying best-in-class stocks among the large caps. And, from a growth perspective we look for shares in small to mid-cap companies which derive a significant portion of their revenue through the provision of sustainable goods and services.

“The bottom line is that in today’s rapidly shifting world, sustainability is a mega trend that is fundamentally reshaping the competitive landscape in every industry. We thus believe that companies that are able to respond to this trend and innovate early will reap the benefits of stronger growth prospects, enhanced operating efficiencies, stronger social licence to operate, enhanced staff retention, lower cost of capital and, ultimately, stronger and longer competitive advantage.

“OMIGSA is excited to welcome the next United Nations Responsible Investment conference to Cape Town in 2013, and remains a dedicated player in strengthening the position of responsible investment in the South African investment industry,” he concludes.