A concept which is similar in nature, but not identical to, ethical investment, is that of sustainable investment. According to the Brundtland Report of 1987, the rationale for investing sustainably is to ‘meet the needs of the present without compromising the ability of future generations to meet their own needs.’
At Holden & Partners, we interpret this as identifying investments which provide solutions to sustainability challenges, and therefore have the capacity to prosper in a competitive and changing global environment.
Businesses which anticipate future economic, environmental and social opportunities, and mitigate the potential risks by focusing on quality, innovation and productivity, possess a competitive advantage, giving them the ability to generate long term value for shareholders.
The crucial questions we must ask ourselves as sustainable investors are: Is the way we invest and what we invest in capable of being continued at its current levels? Will it balance the needs of the planet we live on and the prosperity of its people?
The long term viability of a company’s business model and the way it addresses environmental, social and governance (ESG) factors are decisive in determining its attractiveness as an investment. Sustainable companies typically integrate ESG analysis into their products, processes and practices, offering investors real long term performance advantages.
This analysis is often a prerequisite for investment funds utilising ‘positive screening’ criteria, whereby those companies which demonstrate a commitment to addressing ESG issues are favoured over those which pay scant regard to it. Sustainable funds will rarely incorporate the stringent negative criteria of ethical funds, but a bias to companies which take heed of the environmental and social challenges they face provides resilience, predictability and continuity in returns.
Another approach to investing sustainably is through positive engagement and activism, whereby investors exert their influence to make a positive change to a company’s behaviour. This approach does not necessarily exclude companies from an investment strategy, but instead encourages organisations to adopt good social and environmental practices through engagement with senior management or voting at annual general meetings. Investors have an important shared responsibility in holding businesses to account for their actions, and this is one way to ensure that companies have the interests of shareholders and stakeholders at heart.