Investments  

Why sustainable investing matters

It has become clear, through studies such as the Kay Review, is that one of the main contributors to the financial crisis was a culture of short-term thinking, from which we are only just starting to recover.

It led to pressure on companies to focus solely on short term shareholder value, sometimes at the expense of other stakeholders (such as customers or broader society) and putting at risk longer term returns.

Given that your pension is itself an investment for the longer term, you don’t really want it being subject to such myopic management.

Sustainable investors have long known that it is important to take into account more than just the immediate context of a company’s quarterly results.

The first socially responsible investors (SRI) wanted to be sure their savings were being used in accordance with their own beliefs and values, regardless of the implications for investment returns.

Increasingly, more people are coming to realise that the environmental, social and governance (ESG) issues that exercised those SRI pioneers are not just about ideals – they are about value as well.

You only need to consider the recent floods in the UK, the furore over how much company bosses get paid or the fallout from last year’s horsemeat scandal to realise that these ESG factors can have a serious impact on the profits of the companies in which you invest – and therefore they have a direct effect on the size of your pension.

A whole host of different factors are making it more important that investors take sustainability issues into account.

As the world economy becomes increasingly globalised, a growing population and an emerging middle class in developing economies, which is clamouring for the good things in life, are colliding with limits to growth including food shortages, resource scarcity and environmental degradation.

On top of this, we are all having to deal with the impacts of extreme weather events, whether that is droughts in prime crop-growing areas in the US and Eastern Europe or floods at home and across Europe.

These are becoming more frequent and more intense, with scientists increasingly certain that man-made climate change is behind these alterations to our weather patterns.

At the same time as these “top down” pressures are occurring, there are pressures from the other end of the economic chain – from us as consumers. In our connected world, people are now more aware of the impacts of their own actions – and the impact of the companies whose products they buy.

And now, social media allows people to do something about it and hold companies to stricter standards than they have in the past. That means businesses that are perceived to be acting in an irresponsible manner will be punished for it – recent examples include the demise of the News of the World, forced to shut in the wake of phone-hacking revelations and BP, which is still suffering the after-effects of the oil spill at one of its wells in the Gulf of Mexico.