Responsible investment still a niche activity

Responsible investment remains a "boutique segment" of the investment industry, according to a report for the World Economic Forum.1 Mainstream investors have yet to embrace the "logic" of incorporating social and environmental considerations into decision-making.

Despite widespread evidence that social and environmental factors affect market valuations, says the report, "attention to non-financial factors within the wider investment community remains largely reactive and episodic."

The report was drawn up by AccountAbility following three roundtable discussions involving mainstream fund managers, analysts and trustees, convened under a WEF initiative on corporate citizenship.

"What could propel responsible investing from the boutique to the mainstream?" asks the report. "The answer is likely to be found in the major demographic changes sweeping most advanced industrialised countries and transforming the nature of corporate share ownership."

The report notes that in many parts of the developed world companies are owned by the huge majority of working people through their pension funds and savings.

"Investment is first and foremost about meeting the needs of the owners of the capital. The responsibility of these investors will increasingly be to meet the intrinsic interests of pension plan participants and insurance policyholders in not only competitive near-term returns, but also the long-term vitality of their countries' economies, societies and environments."

However, the report says that the development of responsible investment is impeded by a classic "prisoner's dilemma" in which it is in no one's interest to take the first step alone in making changes, despite the potential benefits.

Another impediment to change, the report argues, is that few fund managers assess their own performance or communicate with the beneficiaries.

The report puts forward the idea of a voluntary code on fund governance to ensure accountability and professionalism, and it proposes a requirement for asset managers to address material non-financial factors.

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