Equities investment and sustainability
Example of:
How investors can factor sustainability into their decision-making to help shift the view of a successful company from one that provides short term returns to one that is more sustainable in the longer term.
Why is sustainability important?
Sustainability is about long term goals yet many investment decisions are short term and not linked to or driven by a longer term agenda of economic growth, environmental protection and improvements to society. There is, however, a case to be made for reviewing a range of investment products to modify the terms and allow a long-term view to be taken. This includes changing the view of what a successful company/investment looks like from one that provides short-term return but that has uncertain long-term viability to one that will deliver ongoing returns as it will survive long-term in the market place.
Who needs support?
Everybody within the organisation needs support, but start with those managing longer term investments, for example any transaction where the intended investment period is more than 3 years. If you have success in this area consider moving into shorter term investments of less than 3 years.
How to support?
Achieving the shift from viewing successful companies as those that provide short term returns may mean changing the dynamic or competence of your decision-making team. Considerations include the following.
- Are you able to identify long-term trends? What process do you currently use?
- How have social and environmental factors been considered? What would a change in climate, demographics, biodiversity, environmental regulation, social / environmental taxes, corruption, reputation, others, have on the investment?
- Do you know where the market is likely to move? How could social, environmental factors influence this? What tools are available to assess this influence?
- Have you a process for identifying sustainable companies, i.e. companies with a secure financial future?
- Which clients are interested in short-term returns or long-term investments?
Examples of techniques being used include the following.
- Undertaking research on sustainability-related risks and opportunities, for example on emerging themes such as climate change, human rights trade corridors or poverty; or on geographic, governance, risk hotspots. This research would then need to be shared with the appropriate investment teams.
- Undertake a sustainability appraisal of specific investment opportunities – sustainability appraisals provide a checklist of questions or responses that an analyst or team would need to consider.
- Recruiting staff who are trained in sustainability and placing them within mainstream teams.
- Sending teams on external training courses or alternatively trainers competent in sustainability could be contracted to provide in-house training that is customised to the company’s activities.
- Providing e-learning or scenario tools to help with case by case examples.
The company’s investment team includes analysts and members of thematic research, portfolio management and the business development teams. The industry analysts are responsible for specific sectors, for example global healthcare, and knowledge and understanding of the companies that operate within those sectors. They produce industry-specific guidance, which covers topics such as long-term trends, market domination, quality of the management team and whether the potential investment is part of the solution to a sustainability issue.
The thematic research team publishes thematic papers every six months, which are presented to the advisory board. These papers cover a range of sustainability issues and the risks and opportunities that these present. The team are also responsible for updating and informing the industry analysts and investment team about developments and events in sustainability.
An important part of the company is its definition of sustainability; sustainability for the company includes issues of climate change, global health and pandemics, water scarcity, poverty and education, corporate governance and risk, and demography. The company does not consider there to be a separation between the thematic and industry-specific research. Members of the thematic research team work with the industry analysts to develop enlightened industry-specific guidance and thematic research papers, which are used to build the company’s ongoing understanding of industries and sustainability and to develop investment ideas.