Impact8 – Quebec’s first investment-readiness program supporting high-impact ventures. The MaRS Centre for Impact Investing launched the Impact8 initiative because we saw a broad spectrum of potential opportunities for impact. There was the opportunity to grow the pipeline of investible opportunities in impact investments, the opportunity to help social entrepreneurs navigate the ecosystem of support and […]Read More ›
RIACon14: Mainstreaming ESG & Responsible Investment
The conference – handily abbreviated to RIACon14 – was a big-tent type event, where relative newcomers to the RI space were able to mingle with leading firms and individuals with decades of experience in the sector. Over 300 attendees spent 3 days taking in plenary talks and workshops covering topics ranging from “RI Basics” and “The Performance Myth” to “Carbon Constraints and Investment Strategy,” to “Best Practices for Anti-Corruption Compliance.” Outside the main hall and workshop rooms, there was an endless supply of coffee and conversation to be had in the trade show area. The organizers and sponsors can be commended for a first-rate event.
With a number of concurrent workshops, it was impossible to take everything in – even fully caffeinated. Nonetheless, after a week’s reflection (and a whirlwind business trip to Japan!) I have a few thoughts to offer for those who may not have had the chance to attend.
There are likely a large number of people who still think of ESG analysis and RI as niche practices for people who want to put ethics over profit. They’d be every bit as wrong as those who feel that having a profit-maximizing motive is incompatible with shaping more socially, ecologically, and financially resilient societies. Indeed, as we settle into a highly turbulent century, it increasingly seems that the best way to safeguard profit is to refine, integrate, and pay close attention to ESG risk analysis. Similarly, in the earnest search for a control panel or a lever to move the world, we need look no further than a financial sector that is well informed by ESG and RI principles. In the 21st century, growth, prosperity, and sustainability are truly intertwined. With more and more companies and investment leaders realizing this, RI really seems to be heading towards the mainstream.
It’s pretty understandable that RI’s material importance and transformative power might be underestimated in some quarters. Once upon a time RI was primarily values driven. Not that this was a bad thing (see e.g. apartheid South Africa). Today, however, we’ve moved far beyond the largely normative approaches exemplified by negative screening of so-called ‘sin stocks’ in pornography, tobacco, and firearms.
Instead, ESG investing is now increasingly about materiality. This might be most intuitively understood at the firm level. Those companies which have questionable safety records (like BP – notably in the leadup to the Macondo blowout), vulnerable supply chains (especially with growing climate disruption), or dysfunctional corporate governance can be exposed both to acute shocks and to long-term risk trends that threaten profit and even the firms’ viability. This isn’t just about doing the ‘right’ thing – it’s about identifying and mitigating the big risks that are demonstrably associated with poor environmental, social, and governance performance.
At the conference, I was struck by the fact that there are leading firms and financial institutions that are already on board with this analysis. Some, like Unilever, are benefitting from strong leadership from the top. Many are also learning quick, if painful, lessons – as Loblaw did when its supply-chain assessments were shown to have been insufficiently rigorous in the wake of the Rana Plaza factory building collapse in Bangladesh. To be sure, many more have yet to take sufficient action, but here too leading individuals are acting as ‘sustainability insurgents,’ to move their firms beyond good public relations and towards good risk management, recognizing that long-term profitability rests not only on good corporate citizenship today, but also on the active cultivation of systemic resilience for tomorrow.
By offering carrots and sticks through ESG analysis and engagement, responsible investors play a critical role in driving these dynamics forward – promoting firm-level, industry-level, and systemic resilience and innovation – and safeguarding their own returns in the process.
There’s a clear emerging empirical case that ESG evaluation does not come at a financial performance cost. While ESG analysis is still being refined, this only means that its fullest potential is ahead – and that early movers and entrants to the space can gain significant long-term advantage.
One challenge – and opportunity – is to really educate advisors and others in the investment community on this basic premise. A lot of thinking is still constrained by the erroneous belief – often promoted by vested interests – that financial health and social/environmental concerns lie on opposite ends of a spectrum. Some environmental activists might accuse the business and investment community of thinking of environmental or social goods as an afterthought – and they wouldn’t always be wrong! Similarly, traditional investors might worry that environmental crusaders sometimes pencil in the financial and economic details of ‘sustainability’ in unacceptably broad strokes. Too often, this sentiment has also been well founded.
ESG analysis and RI however point a way forward for both ideal-type camps.
Investors and business leaders who refine and integrate ESG analysis and RI principles will have more fine-grained information at their disposal, and better planning and foresight capabilities, thus allowing for better risk awareness and avoidance, and smarter expenditure and investment decisions. Traditional environmental and social activists eager to drive positive change will find that responsible investors are strong allies – especially when ESG analysis is coupled with active engagement to push companies on their performance.
How can we build on all this natural momentum and really accelerate RI mainstreaming and ESG integration? One good place to start seems to be with certification and training programs like the RIA’s RI Academy, the Sustainable Investment Certification Program at Concordia, and similar offerings sprouting up at other institutions.
With every additional RI-minded analyst or advisor – and with great events like RIACon14 – mainstreaming gets a little bit closer to reality. I wouldn’t be surprised to see an even larger attendance at next year’s gathering.