Institutional investors have a great opportunity – and in some cases a legal obligation – to take into account environmental, social and governance issues when they choose how to spend their resources, a new study backed by the United Nations Environment Programme (UNEP) and released today concludes.
The study challenges the notion that the profit objective is the most important factor in choosing investment vehicles. Conducted on behalf of the agency's Financial Initiative, the study focused on the capital markets in Australia, Canada, France, Germany, Italy, Japan, the United Kingdom and the United States.
"This is groundbreaking work that will accelerate the integration of environmental, social and governance issues into the mainstream investment community worldwide," UNEP Executive Director Klaus Toepfer said of the study, which the agency released to coincide with its two-day Global Roundtable that has brought some 450 participants to UN Headquarters in New York to discuss the results.
Paul Watchman, partner in Freshfields, Bruckhaus, Deringer and senior author of the 150-page study, told reporters in New York that its aim was to determine to what extent environmental, social and governance considerations might be integrated into investment policy, and whether or not the law supported such a view.
"Investment decision makers have broad discretion to take into account environmental, social and governmental considerations, in fact we argue they have a duty to do so in certain instances particularly where it goes to value," he said, but also where there is a consensus among the broad group of beneficiaries.
The study offers examples of how companies adopting socially responsible practices avoided future liabilities and losses. It also noted that 70 per cent of 195 fund managers polled in 2005 thought these issues would be integrated into mainstream decision-making within the next three to 10 years.
These developments could have implications for countries trying to achieve the global antipoverty Millennium Development Goals (MDGs), because investment companies are developing metrics that measure whether a company is aligned with concerns such as poverty alleviation and environmental impact, UNEP's Head of Research, Paul Clements-Hunt head, said.
Already UNEP has developed over a dozen environmental metrics as part of its Global Reporting Initiative which seeks to integrate sustainability in the measurement of a company's performance.