Once a niche trend, responsible investing has now entered the mainstream. That shift reflects both changing societal expectations and growing evidence that good companies perform better.
Responsible investing has a long history, dating back to at least the 18th century, when English Quakers refused to invest in slave-trading companies. Far more recently, in 2006, the United Nations and a small group of institutional investors launched the Principles for Responsible Investment (PRI), accelerating a movement that currently includes over 2,000 global signatories. Collectively, those investors and asset owners represent more than $82 trillion in assets owned or under management.
The PRI is not prescriptive – you do not have to exclude specific companies or investments, for example – which is part of the reason it has gained such a wide following. Indeed, the PRI recognises that “responsible investment” means different things to different people. Such strategies also come under different names: responsible, sustainable, socially responsible, impact investing and so on.
A broadly accepted distinction is often made between an investment strategy that’s strongly driven by specific values – such as the exclusion of tobacco, alcohol or weapons – and one that takes fewer, if any, absolute positions but still seeks to take into account relevant environmental, social and governance (ESG) factors.
Consider the pacifist Quakers, who refused to invest in slavery three centuries ago. Today, they do not invest in companies that manufacture weapons. Such a strategy – where values play an absolute role in investment decisions – is typically called “sustainable” or “socially responsible,” while the broader incorporation of ESG factors is known as “responsible.”
But, you may ask, will a responsible strategy limit my investment universe and lead to lower returns? That’s a legitimate concern, but we believe the simple answer is no.
The rise of responsible investment
PRI assets under management (USD TRN) & signatories
Brown Shipley Investment Office
This article appears in our Global Investment Outlook 2019. An indepth look at the key trends and big ideas that will shape the global investment outlook over the next 12 months. Download a copy of this document here.