Time to push responsible investing

by Stuart Wilson for The Australian, November 23rd, 2010.

It’s more than odd that responsible investment hasn’t taken a firmer hold within the retail investor, analyst and fund manager communities.

After all, surely no one would aspire to be an irresponsible investor. Yet it remains on the fringe of traditional investment analysis, with specialist funds catering for demand.

Responsible investing is often divided into three subsets: environmental, social and governance (ESG). In many ways, the corporate governance aspect has gained a stronger foothold among the investor community.

Disclosures are required to be made in the annual report against a defined set of principles. Shareholders have the ability to vote on key governance decisions, such as who should be on the company’s board and how the senior staff should be paid. And engagement with company chairmen is on issues that are close to home.

For an industry that is focused on outperformance, the exclusion or outsourcing of ESG analysis from the major equity funds is almost incomprehensible. There is a slew of evidence that shows that environmentally sustainable companies outperform their peers. There’s even more empirical proof that well-governed companies outperform.

On the social side, it is clear that consistently reducing workplace injuries and improving both customer and staff satisfaction can have a material impact on profitability. Compared with the US, Australian corporate governance is at least a decade ahead. However it is important to ensure the other legs of responsible investing are neither forgotten nor relegated to some “specialist” portfolio. Perhaps the success of those in the governance space can be emulated by the professionals in its sister fields. Here’s how.

Finding common ground between the company, analysts and responsible investors is fundamental. Take the banks’ consumption of paper. Tens of thousands of tonnes of paper are used by Australian banks each year. By having them focus on avoiding duplication, building efficiencies and reducing waste, material cost (and paper) savings can be achieved — to the benefit of all. The integration of a business strategy to reduce costs with a positive environmental impact is the key to successful engagement. (continue reading… )



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