This article is a good example of why we need businesses to be a force for good, because it debunks 5 key myths about socially responsible investment and explains trends that mean it will become increasingly important
Description:
To Dr. Matthew J. Kiernan, Founder and Chief Executive of Innovest Strategic Value Advisors, asking whether socially responsible investing (SRI) “out-performs” traditional investment approaches is about as useful as asking “Does equity investing out-perform?” The answer in both cases is an unequivocal “it depends.”
Dr Kiernan begins by debunking five "key myths" of CSR investment consideration:
1) "Addressing sustainability factors is irrelevant or even injurious to risk-adjusted financial returns."
The dramatic failures of companies who have failed to manage these factors well shows how erroneous this is.
2) "It is likely a breach of fiduciary duty to incorporate sustainability factors into investment strategy."
How can it be a breach of duty to examine factors that can lead to the downfall of a company?
3) "There is no academically credible evidence to support the sustainable investment thesis."
This "is blatantly untrue".
4) "Sustainability and other “extra-financial” analyses are inevitably less rigorous and more arbitrary than traditional investment analysis."
Mainstream financial analysts agree that management quality is the single most important determinant of companies’ competitiveness and financial performance. A company’s ability to manage complex and ever-changing CSR issues provides an increasingly robust proxy for that management quality.
5) "All SRI/sustainability research and investment approaches are essentially the same."
This is just as erroneous as claiming that all mainstream approaches are the same. It is imprtant not to throw the baby out with the bathwater.
The following factors mean that an assessment of CSR or ESG (Environmental, Social and Governance) factors are likely to become even more important:
- Growing empirical evidence of the link between performance on ESG issues and competitiveness
- Tighter regulation
- Growth in emerging markets, increasing exposire to non-traditional risks
- Growing pressures from NGOs
- Shareholder activism around ESG issues