Why big 'R', big 'I' Responsible Investing should give way to investing responsibly to maximize investor benefits in a changing world
To say our world is in transition is a massive understatement. Global disruptions – social and environmental – the rapid pace of technology-driven change, and the broad availability of information across all forms of media and from an infinite number of sources, have converged in a way that is simply overwhelming.
Subjected to mountains of data, and a never-ending stream of global issues and events crossing our screens every second of every day, most of us – including advisors and investors – are being swept up in changes we have no idea how to manage.
That impact is felt in two ways:
The first is paralysis. When you’re in the middle of massive amounts of change, the last thing you want to do is invest without knowing what it all means. And yet there seems limited opportunity to evaluate the impact of change in today’s world. So, we freeze.
And that leads to a second impact: FOMO – fear of missing out. With change comes incredible new opportunities to prosper and grow wealth. We see them everywhere. And even though there’s more uncertainty than we’re comfortable with, we don’t want to miss out.
Today’s world has created a tension between being stuck on the sidelines and the fear of missing out on something big.
I believe the way to resolve this tension is by investing responsibly. Notice I didn’t say Responsible Investing with a big ‘R’ and big ‘I’. I believe there’s a difference. Understanding that difference is the key to resolving the inherent tension investors are facing today.
How Responsible Investing has evolved.
In the beginning, Responsible Investing was a simple game of avoidance. A small group of investors wanted to avoid owning certain types of companies, like tobacco manufacturers for example. It was traditional investing with a values-based constraint.
We still practice that in some NEI funds. But more importantly, in our portfolios, we have consistently applied the thesis that investing in a responsible manner – in a way that can help grow wealth by ensuring the sustainability and viability of the companies we invest in – could and would generate value for investors, for other company stakeholders like employees and customers, and for society overall. Years ago, that meant applying the blunt instrument of exclusions. But not anymore.
As the world and the demands of investors have changed, we’ve evolved our approaches. We saw the value of engaging in dialogues with company management as a means of highlighting future risks companies themselves didn’t know they faced. We incorporated proxy voting into our corporate engagement strategy, turning a relatively pedestrian activity into a powerful tool for company change. We conducted policy advocacy with governments, regulators, and standard setters to ensure companies operate on a playing field that favours their long-term viability and profitability, as well as society’s demand for positive change.
And by integrating those elements with the investment-focused views of an internal investment management team and global money managers who bring their own distinct experiences and expertise to the table, we’ve created an investment approach based on broad data sets, diversified perspectives, and a holistic view of investment opportunities; all with the goal of delivering better financial outcomes, as well as positive non-financial outcomes*.
That’s investing responsibly. And it’s a considerably more complex and sophisticated approach than simply integrating ESG factors into investment decisions, which is far and away how most asset managers view big ‘R’ and big ‘I’ Responsible Investing: as a narrowly defined, static, and fixed approach.
Investing responsibly conversely, is dynamic and evolving. It’s an outlook. A mindset. A way of thinking that expands immeasurably how you look at risks and opportunities and the breadth of outcomes you seek to achieve with your investments.
Investing responsibly views the world for what it is: a place in transition, where opportunities are being driven by mega trends and mega capital; and where the biggest risk is failing to understand where the puck is going.
Investing responsibly recognizes the impact of this world on how companies operate. It sees that long-term viability and profitability are determined by how companies respond to the social and environmental factors that not only dominate our headlines, but also influence consumer and investor demand and the direction of capital.
That’s critical, because if all you’re doing is investing in companies with strong ESG performance, you’re not considering who will do well in our transitioning world. Every company today knows the importance of having a climate strategy or a diverse board. You’re going to get exposure to that good stuff no matter who you invest in.
By investing responsibly, however, we can confidently pursue the potential for above-market returns, knowing that the social and environmental benefits investors also want will come along with that.
That’s the approach investors and their advisors need to succeed in our rapidly transitioning world.
