DEEP Insight

Responsible Investing Takes Root Premium

Seeds of Change

Authors: Ferraro, Fabrizio

Date: First Quarter 2013

Tags: finance, responsible investment, PRI, sustainability, environment

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Responsible investment is moving from being a niche in the asset management universe to increasingly becoming mainstream. In Europe, especially, it appears to be taking off. This article identifies some of the key drivers and the challenges that responsible investment poses to investors and managers as they try to take this novel field and embed it into their institutional practices. Looking to the future, the author highlights three areas that he believes will need close attention: new financial strategies to deal with problematic industries; the role of Chief Sustainability Officer will become increasingly strategic; and the transparency requirements being demanded for public companies will need to apply to private ones, too, otherwise the diffusion of these practices will only be partial and their impact greatly reduced. Though much remains to be done, the author believes this is an opportune moment for institutionalizing responsible investment and ushering in a new, more sustainable age of capitalism.

Tools and Frameworks:
> "Responsible Investment Takes Off" compares the evolution of the responsible investment movement in the United States and Europe, showing how it has suddenly taken off in Europe in just five years.
> "The Six Principles of Responsible Investment" lists the principles that investors are signing up to for "a more stable and inclusive global economy."
> "Responsible Investment: An Insider's View" presents highlights from a longer video interview with James Gifford, Executive Director of the Principles for Responsible Investment (PRI).

Examples Cited:
PIMCO, Blackrock, KKR, Domini, Calvert, Trillium, BT, Hermes, APG, PGGM, Norwegian Government Pension Fund, CalPERS, Swiss Re, Deepwater Horizon, BP, Interfaith Center on Corporate Responsibility, Global Reporting Initiative, International Integrated Reporting Committee, KLD, Jantzi Research, Innovest, Vigeo, Eiris, MSCI, Bloomberg, Thomson Reuters, U.N. Principles for Responsible Investment

Research Basis:
Based on research by the author on the emergence of responsible investing in mainstream financial markets, which is supported by a five-year grant (2011-2015) from the European Research Council (ERC-2010-StG-263604-SRITECH) as well as a study on the institutionalization of the Global Reporting Initiative published in Organization Science.

About the Author:
Fabrizio Ferraro is an associate professor of Strategic Management at IESE.


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