Responsibility gains weight

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Responsible investment has been given a boost by the amalgamation of the Enhanced Analytics Initiative with the UN-sponsored Principles for Responsible Investment.

The EAI has been one of the loudest voices calling for investors to pay more attention to long term and hidden risks. Set up four years ago to encourage brokers to produce more and better research on “extra-financial issues”, the EAI declared at the outset its intention to make itself obsolete by bringing these extra-financial issues into the
mainstream.

Coming under the PRI’s aegis makes it part of a group representing $13,000bn (£7,360bn, €9,452bn) in assets. This could indicate responsible investing will become a serious factor in how global markets operate.

“What we’re going to see is the market actually working the way the market is supposed to work,” said Marcel Jeuckens, head of responsible investing at Dutch pension fund PGGM and a founder member of the EAI. He said this meant investors being able to demand their fund managers research and engage with companies on questions of risk unmeasured by balance sheets and company reports.

Although this chain of responsible investment sounds reasonable, research company Rimetrics has discovered it breaks down at several points along the chain.

First, the asset owners may be able to articulate their principles but “dealing with these issues is rarely well structured within mandates”, so a fund manager may be required to pay attention to these issues, but not do anything about them, according to Jonathan Horton, chief executive of Rimetrics.

Then, asset managers themselves have failed to use the research now available. “They are not so good on average at doing the actual engagement work – and they’re even less good at taking the knowledge and integrating it into the investment process,” said Mr Horton.

World markets would now be safe and sound if long term investors had been given more of a voice, according to a group of investment experts.

“Investors and borrowers are saying the cabal of bankers and regulators are coming out with the exact same ideas that haven’t worked for the past 20 years,” said Avinash Persaud at the Network for Sustainable Financial Markets, a loose group of asset managers, consultants and academics. It is calling for investors to make themselves heard.

Michael Mainelli, leader of think-thank Z/yen and a network member, said: “We think a lot of the systemic problems are because environmental, social and governance issues are just not bound into the [financial] system at all.”

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