“Companies that consider ESG are better bets”

Fiona Reynolds left her home in Melbourne, Australia, and uprooted to London roughly two years ago to take on the role of managing director at Principles for Responsible Investment (PRI).

The organisation is an investor initiative in partnership with the United Nations (UN) and has six principles of investing that signatories must implement as part of the PRI’s aim to establish a more sustainable global financial system.

Ms Reynolds explains: “In essence the principles are all about the fact that you will incorporate environmental, social and governance (ESG) factors into your investment decision-making and that you’ll promote the principles as well.”

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She is the first to acknowledge there is often some confusion between socially responsible investment (SRI) funds and responsible investment.

“For us, responsible investment is all about mainstream investment,” she clarifies. “It’s about people incorporating ESG risks. But it’s not about saying they’re more important or elevating them above other risks. Your key role as an investor is to consider risk versus return and when people are looking at risk, that there is more to think about than just the balance sheet.”

She continues: “We know that companies that are well governed, have good boards, and have the right policies and practices, are better companies. They perform better; they outperform other companies. So we know companies that do consider ESG risks are going to be better bets for people over the long term.”

Prior to joining PRI, Ms Reynolds had established a career in the Australian pensions, or superannuation, industry. It was the impact of the global financial crisis on personal pensions that stoked her interest in responsible investing, though.

At the Australian Institute of Superannuation Trustees, where she spent six years, Ms Reynolds had been involved in lobbying the government to increase compulsory pension contributions from 9 per cent to 15 per cent and found some success, with contributions eventually raised to 12 per cent. But she had also witnessed many Australians, as elsewhere in the world, lose a significant proportion of their retirement pot when the financial crisis struck.

She admits: “It is okay if you’re a 20 year old or a 30 year old if you have some losses in your pension fund because it will go up and down, and you’re in it for the long term.”

But it was different for “those people who were in their 50s”.

“They had saved for their retirement and they had thought they were going to be set up for retirement, [and] then found in some cases 30 per cent of their balances were gone in one fell swoop.”

“I then thought,” she adds, “why am I spending all of this time trying to get more money put into the system when there are obviously fundamental problems?”

For Ms Reynolds, it was clear the markets were not secure and that they were not considering risk in a holistic way.