In September 2009 the Private Wealth Council met with investment experts and chief investment officers form the Socially Responsible Investment (SRI) industry. The aim of the meeting was to get further practitioners' industry insight on the Council's philosophy of Responsible Investing.
Key discussions included:
Integrating values into the investment process is important to enhance long-term investment strategies. Technically, the industry is able to align investments with client's personal values but the implementation is often blocked by incentive structures that award corporate benefits rather than client satisfaction. With this in mind, finding the right partner in the financial industry remains crucial for private wealth owners.
Having the big picture in mind by looking at drivers of global change, helps in being a successful long-term investor. There is often a choice to either benefit in a simply opportunistic way or to drive sustainable change at the same time. For investment purposes, it is important to focus on drivers that bring fundamental macro-economic change and represent trends that are long-term and predictable. The industry representatives viewed "global environmental crisis" as well as "scarcity of resources" as highly important drivers and warned against investment bubbles that may occur during strong growth phases in emerging industries.
Deriving investment themes from overall drivers of global change is not always easy. In a brainstorming session, the participants named the following themes as those that should be given a closer look:
- Biotechnology
- Cleantech
- Climate Change Adaptation
- Education
- Empowering the Poor
- Forestry & Fishing
- Green Buildings
- Innovations
- Lifecycle Thinking
- Natural Resources
- New Media
- Nuclear Power Technology
- Organic Land Use
- "Silver Age" / Wellbeing
- Water
The participants agreed that all of the above mentioned investment themes - including traditionally controversial themes, - could potentially be Responsible Investments if a sustainability check is applied. Water investments, for example, were mentioned to be most sustainable if invested in treatment and efficiency technologies as opposed to those invested in the resource itself. The crucial question for each investment theme therefore is: How is the theme applied?
Once a specific investment is found, its operating business should be evaluated from an extra-financial perspective: often named as ESG (Environmental, Social and Corporate Governance), in order to drive sustainability from the company level while reducing the investor's financial risk at the same time. There are many SRI funds that use sophisticated research agencies that measure the sustainability (ESG) of companies. The industry mainly uses this for the creation of funds.
The meeting with the industry experts confirmed that the concept of Responsible Investing can be applied. The initiative, however, has to come from the principal.