Within the investment community, responsible investing, in one form or another, has been in practice for over 30 years. Early on, the concept had no universal definition, but typically meant aligning an investment portfolio with a moral or ethical belief system – which could be effected simply by excluding companies that were not compatible with the investor’s beliefs.
Today, responsible investing has evolved considerably in its sophistication and range of approaches. As illustrated in the sidebar, responsible investing can include ESG integration, engagement and socially responsible approaches, which can be further broken down by a variety of strategies including impact, screening and other themes.
In addition, a discussion about responsible investing can also include related topics such as a company’s corporate citizenship, philanthropy or efforts to increase diversity.
While responsible investing has moved into the mainstream, and the rate of adoption of responsible investing strategies has accelerated, it remains a topic defined by starkly different views and opinions. Indeed, consensus on key responsible investing issues is the exception. Many investors believe strongly that incorporating ESG factors in the investment process can mitigate risk and add value; however, others remain unconvinced of the value that an ESG approach offers. Adoption of ESG investing appears to be growing; indeed, a significant number of institutions plan to increase (or establish) allocations to strategies that incorporate ESG factors in the near term. However, others seek better data about the ESG performance of companies before they will incorporate ESG factors into their investment process. There also appears to be broad disagreement about the appropriate role of shareholders, industry and/or regulators when it comes to improving reporting on ESG activities. Attitudes toward many aspects of responsible investing are remarkably different in Europe than they are in North America.
These are among the key conclusions drawn from RBC Global Asset Management’s (RBC GAM) 2017 survey of institutional asset owners and investment consultants within Canada, Europe and the US. The survey reveals some of the questions and concerns that persist among institutions, including whether a divestment or engagement approach is best when attempting to influence corporate behavior. It also highlights possible reasons as to why the US has been slower than other regions to integrate ESG factors in investment processes.