By Loren Francis on May 7, 2019
How does a company go bankrupt because of a forest fire? How does an investment grade company fall to junk status in a week? Just ask Pacific Gas & Electric (PG&E) how 2018 stacked up for them. What can we learn from this to be able to ask our investee companies the right questions? Risk assessment and management has always been a fundamental element of the investment process. Understanding and anticipating the forces that can affect profitability, many would argue, is the most important element to managing a successful portfolio. Today’s risks require a new set of questions; flooding, fires, labour conditions, executive compensation, gender diversity and corporate governance issues all continue to make headlines and impact valuations. This year’s Responsible Investment Association’s (RIA) conference held in Montreal April 24-25 provided an excellent array of presentations and panel sessions on all topics regarding Responsible Investing as a way of managing risk, not just for client portfolios, but for our planet too.
As written in our previous papers, Making an Impact: Aligning Values with Investment, and Designing Investment Policy for ESG and Impact Investing, at HighView we believe that as Responsible Investing continues to gain ground, it is our role to ensure we are well versed and adapting practices in this space. Practices that allow us to better understand both the financial risk of our investments, as well as the long term risk of negative social and environmental impacts they could create. The world of maximizing short term returns without regard to long term impact will harm us all. As investors, we have a role to play in shaping outcomes through our investments.
The 2018 Canadian Responsible Investment Trends Report tells us that Responsible Investing continues to experience rapid growth in Canada, data from their survey tells us that Environmental, Social and Governance (ESG) factors are now important components of investment decisions, and in fact, Responsible Investing now comprises over 50% of all assets under management in Canada. The top four reasons for considering ESG are:
- managing risk,
- improving returns over time,
- meeting client demand, and
- fulfilling fiduciary duty.
Interestingly but not surprisingly, the topic of integrating ESG seem to be more prominent following significant disruptive events. Professor John Ruggie from Harvard University told us that two ESG spikes have occurred in the USA – one following the financial crisis of 2007-2008, and the second following the 2016 election of President Trump. There is a growing understanding that negative social and environmental impact is not without significant costs. We need to be concerned with the impact on human, social and natural capital, not just financial capital.
As Erica Karp of Cornerstone Capital spoke about in our lifetime we are witnessing unprecedented change – we need a regenerative economy and we won’t get there without changing the current system. The focus on maximizing short term shareholder returns distracts companies from doing what they should be doing – innovating, investing and renewing their strategies to take care of ALL stakeholders.
So how would you like to make an impact and what is the legacy you would like to leave? Perhaps a refreshed understanding the United Nations (UN) Sustainable Development Goals (SDGs) is a good starting point.
In September 2015, 193 countries of the UN General Assembly adopted the 17 SDGs that were developed by the UN to end poverty, protect the planet and ensure prosperity for all with an agenda for global sustainability by 2030. We believe it is important to consider the SDGs in the analytical framework that our investment managers employ. All companies make a social and environmental impact at some level, and through our allocation of capital and direct engagement with company management, we can push for more positive impact and improvement on ESG practices.
HighView continues to explore Responsible Investing. In early 2018 we initiated ESG as part of our ongoing due diligence with our investment managers and we will continue to build and report on this. We look forward to hosting focus groups on this subject through the summer, and having our strategic partner Rally Assets present at our upcoming Fall event in October. Our goal for our clients is an investment process where, as our friends at Rally would say, results in “investing that profits everyone”.
HighView is an experienced fiduciary portfolio management firm committed to investor transparency. We would be happy to discuss our goals-based investment approach with you and your professional advisors.
You may also be interested in:
- Making an Impact: Aligning Values with Investment
- Designing Investment Policy for ESG and Impact Investing
Latest posts by Loren Francis (see all)
- Utilizing Investment for Impact: Part 2 - October 1, 2019
- Utilizing Investment for Impact - July 18, 2019
- Responsible Investing and Alignment with the Sustainable Development Goals (SDGs) - May 7, 2019