Are socially responsible businesses a good investment? In the finance profession, traditionally built on the pursuit of profit alone, little mind has historically been paid to environmental, social and corporate governance (ESG) factors. But the investment world has changed, according to Mark Haefele, chief investment officer at UBS.
‘Investors must consider social responsibility when making investments,’ wrote Haefele last week. ‘There is now strong evidence that thinking about social responsibility as part of the investment decision-making process does not sacrifice returns. Indeed, it can actually help de-risk, diversify, and enhance them.’
That may sound like any other senior executive climbing aboard the social responsibility bandwagon, but it’s quite remarkable coming from Haefele. He is, after all, someone who freely admits to being a longstanding disciple of Milton Friedman’s now infamous creed of shareholder value. Indeed, his change of heart is still rooted in shareholder value – he just thinks that ESG investments are now the best way of achieving it, in share price growth if not in profitability.
These aren’t just words. In July, UBS raised $325m for the Rise fund, which was co-founded by Bono (Haefele must be serious...), and which aims to make $2bn while achieving social and environmental impact. Haefele was careful to stress that he was not advocating ‘mixing investment with philanthropy’ but rather that it seems that doing good business can actually be good for business (who knew?).
More broadly, ESG-focused investments are growing. The Global Sustainable Investment Alliance says that 26% of all professionally managed assets globally took into account ESG related issues, and it claims that this figure of around $26 trillion is growing in double figures.
Why does any of this matter? Because business needs investment and finance to thrive, and while the financial sector is obsessed with shareholder value, socially responsible businesses will always struggle to become the norm. Put another way, the better socially responsible businesses perform in terms of their shareholder return, the less pressure there will be from the world of finance to deliver profits first, purpose second.
Haefele’s observations do not mean that ESG-focussed companies are a sure-fire way to guarantee returns, but they do indicate the trend is picking up steam, perhaps because customers are starting to vote with their feet when it comes to ethical issues. If things continue, a future where ESG companies are the mainstream is not so inconceivable.
Incidentally, this could also be good news for gender equality at work. ‘In our view, gender diversity serves to a certain degree as a proxy for good corporate governance practices,’ said Haefele, indicating that firms with more women in leadership positions are to be viewed more favourably as investments. With firms such as Morgan Stanley earlier this year encouraging analysts to look at gender issues when evaluating investment prospects, there is reason to be optimistic.
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