Saker Nusseibeh says green investing should be integrated in the mainstream of investment activity rather than be treated as a fringe activity
Green investing, impact investing, and indeed true integration of sustainability, remains, for all of the positive noise made by governments and investors, something of a fringe activity in finance, and will continue to be as long as it remains part of a specific product rather than be integrated in the mainstream of investment activity.
Ultimately the main financial markets are controlled by citizens through savings pools, pensions and savings. The investment industry needs to turn its focus to meeting holistically the economic and social needs of its citizen clients.
The reason why investment should integrate these facets (which all add up to long-term holistic returns on investment) is that we have separated the rights and obligations of citizens as collective owners (through their savings and pension schemes) of the corporations that shape our future from the relationship of their agents with these same corporations.
Therefore the first move towards change is actually a simple one; it is to convince people to enfranchise themselves and become active owners and stewards. We must democratise the market. If we as owners came together and went to our pension and savings product providers and said, "We believe in sustainability, we don't want our children and grandchildren to suffer by living in a polluted world, we don't want our companies to be involved in slavery or market abuse and we want them to pursue long-term sustainable business strategies and not short-term goals that only benefit the current C-suite. We instruct you to become an active steward to pursue this long-term investment horizon". Through stewardship and active ownership, we could put pressure on companies to push a more sustainable, impactful and green agenda forward.
Secondly, we need to change the way we think about the financial markets. I would argue that the way we currently assess returns is incomplete. We simply calculate the immediate financial gain (rise in share price for example) without taking into account secondary or tertiary effects of that investment, and which may have a profound economic effect either on that particular share price or the entire system. Looked at another way, we can arrive at a different valuation matrix when we look at the cost of doing projects and the opportunity cost of not investing in them. For example, we might argue that the cost of not investing in renewables such as solar or wind power on the entire economic system, far exceeds any short-term return gained by an oil rig or gas turbine.
And if we manage to combine the first issue - stewardship - with the second - holistic cost - we would come up with a different way to think about mainstream finance. That means you start thinking that every time you invest in mainstream companies you ask them to take into effect, not just the immediate return over one, two or three years, but actually a ten-year return. Moreover, a return not just in the immediate financial sense, but in the sense of the community, the workers, the wider society.
The inclusion of stewardship and holistic cost in the everyday financial investment matrix will inevitably lead to making a compelling case to invest in sustainable, low carbon strategies.
Post Brexit, the investment industry in the UK faces a choice; it can either evolve into the world leader in responsible investing and capitalise on this undoubted wave of demand while occupying the moral high ground, or it can be content to follow where others lead and lose business to them, while remaining stuck in the mire of nostalgia for the 1980s.
Saker Nusseibeh is chief executive officer at Hermes Investment Management
The views and opinions contained herein are those of the author and may not necessarily represent views expressed or reflected in other Hermes communications, strategies or products.
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