Asset managers increasingly turn to sustainable investment strategies
With more investors selling assets in harmful industries, closer attention is being paid to the profitability of sustainable investing strategies
The idea behind it is simple: investor activism strengthens companies' corporate and moral balance sheets. Experts refer to an environmental, social and governance (ESG) matrix against which performance is measured. This includes checking a firm's carbon footprint, wage level for low-end workers, waste disposal policy or involvement in so-called "vice" industries tobacco or defence.
The companies are then rated by global analytics firms like MSCI, which allows investors to pick and choose those that meet their standards.
The work involves hundreds of computations conducted annually, although ratings can be adjusted in real time, if, for example, it is discovered workers were paid below the legal minimum.
"There is no global approach here so it is quite challenging," although there were efforts to create industry standards and benchmarks, said Jessica Robinson, the chief executive of the Association for Sustainable and Responsible Investment in Asia.
At least US$13.6 trillion of professionally managed assets incorporated ESG concerns in their portfolio selection in 2012, according to ESG investment advocate Global Sustainable Investment Alliance. This represented 21.8 per cent of the assets managed professionally in the regions covered by the alliance.
Momentum for a more activist investment approach is growing among institutional investors. The trend was illustrated in September when the Rockefeller heirs to the Standard Oil fortune announced their US$860 million philanthropic organisation would divest its fossil fuel holdings.