According to the Global Sustainable Investment Alliance, over $22 trillion of assets were managed under responsible investment strategies globally in 2016 - up 25% from two years before. Furthermore, the assets under management of signatories to the United Nations Principles for Responsible Investment (UNPRI) have grown from $6.5 trillion in 2006 to $62 trillion in 2016. And the number of signatories has grown from 100 to 1,500 over the same period. Mirabaud have been signatories to UNPRI since 2000.
These two examples illustrate how Environmental, Social and Governance (ESG) investing has gone mainstream. Promoting this development are major trends such as the growing importance of good governance; the reality of climate change; and the gradual shift in energy sources. Other drivers include the rise of new technology, which is driving profound shifts in the way business is conducted; changing demographics as Millennials and Generation X increasingly take over from Baby Boomers in positions of power and influence; and the tailwinds provided by the evolution of regulations within the business environment (as shown in the chart below).
Percentage of respondents taking at least one ESG issue into account by age segment
Mirabaud Asset Management was built around the concept of responsible investing and we have always seen sustainability as a long-term force that drives our investment approach. It can have an important impact on future risk-adjusted performance, which is what we strive to deliver for all our clients. This conviction leads us to treat sustainability and ESG investing just like any other return driver within the investment process.
We strongly believe that investors should consider social and environmental responsibility when making investment decisions. That’s because we know that companies with good management and efficient governance, who take social and environmental risks seriously, will, over time, deliver stronger earnings growth. The external environment is changing rapidly and there is now greater appetite from consumers and the business environment for companies to embrace ESG principles. We believe that those companies motivated to make positive ESG impacts will benefit from long-term, sustained demand for their goods and services, improving their bottom line.
An increasingly transparent world means that ESG factors are now more easily measured and are increasingly captured in market prices. We are convinced that integrating ESG principles as part of the investment decision-making process does not sacrifice returns. Instead, it can actually help de-risk, diversify, and enhance them. We believe that each investment manager should take ownership for integrating these factors pragmatically into their investment processes. The overriding objective should always be to generate the best risk-adjusted outperformance over time for our clients.
A 2015 working paper published by the Harvard Business School* used information from the Sustainability Accounting Standards Board (SASB) to classify sustainability topics as material or immaterial according to industry membership. This study found that firms with superior performance on material sustainability issues outperformed firms with inferior performance on material sustainability issues.
More generally, in a world of globalisation and social media usage, reputational risk from issues such as climate change, lack of employee diversity and aggressive tax policies is now of critical importance.
Today, the sustainable investment market is broader and deeper than ever before. This means that investors can now achieve the goal of traditional diversified portfolios with sustainable assets. Indeed, sustainable investing can now move from the “satellite” to the “core” of an investor’s portfolio without sacrificing returns.
As the asset management division of a group that has been owned by private families for seven generations, Mirabaud Asset Management was built around the principles of transparency and responsibility. Little wonder then that rigorous risk-management procedures and sustainability form part of our core values and DNA.
Finally, Mirabaud Asset Management is committed to integrate ESG practices into our own business. We adhere to standards that form the basis of the group’s charter for each and every employee towards corporate social responsibility. Working with external partnerships on social responsibility is also an important commitment. For example, Mirabaud Asset Management has developed a close partnership with Interpeace since 2011, an NGO that supports and accompanies initiatives aimed at creating the conditions for lasting peace throughout the world.
CEO Mirabaud Asset Management
(*Source: Corporate Sustainability: First Evidence on Materiality, Mozzeaffar Khan, George Serafeim, Aaron Yoon, Working Paper 15-073, Harvard Business School 2015)