Cape Town - There is a growing awareness of a need for responsible investing by individual and institutional investors, according to Jana van Rooijen, a responsible investment specialist who looks after the Responsible Investment Initiative of Momentum Investments.
She says the term "responsible investment" is often misunderstood as a set of principles – religious, environmental, social or transformational – that might be used to guide a certain portfolio.
"In fact, responsible investment has a far deeper relevance. It involves taking wider contextual factors into account when making investment decisions," she explains.
"In the same way as purchasing a house will mean you inspect the house, consider the safety of the area, the schools and the length of the commute to work. Those wider contextual factors are crucial to the value of your investment in the long term."
Similarly, being a responsible investor is about investment managers taking their fiduciary duty to heart. It’s not about finding quick wins or following the herd. It requires a long-term view.
A company facing questions around fraudulent accounting practices will not be sustainable in the long term and will not represent a responsible investment.
"Investors should take such issues into account. This requires asking tough questions – of yourself, as an individual investor, and your investment advisers. Should you give someone money if they may be lying about their books, if their business principles aren’t in place or their processes threaten people’s rights?" asks Van Rooijen.
"This goes to the heart of personal values. Investors should understand that they are not simply chasing profits, but they are investing in a future they will retire to. While individual investors do not have the material clout to influence the market, they can have an effect through their financial advisers and the consultants that manage their investments."
Making responsible investment decisions, therefore, requires thorough analysis of potential investments considering environmental, social and governance (ESG) factors. Responsible investment cannot be relegated to being a thematic portfolio or a separate investment category. It must be integral to every part of an investment institution’s activities.
Responsible investing needs investment managers to be active owners. In the equity field, it would require a focus on corporate governance. They should vote at every annual general meeting, according to the investment principles they are there to uphold. There should be quarterly proof of investment managers’ votes.
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