Mainstreaming Responsible Investment - AccountAbility

Modes of Responsible Investment
Conditions for “Universal Investment”
Action by groups of investors, who together see opportunities
for mitigating risks associated with their collective investing
activities; for example, initiatives such as the Equator
Principles, the Investors Network on Climate Risks, and the
Pharma Investor Group.
Action by individual investors that see a market opportunity in
embracing a broader, responsible investing strategy, such as
the high profile positions taken by the likes of CalPERS and
Insight Investments.
Public policies designed to enhance the delivery of public
goods (e.g., environmental and civil security) through
enforcement of investor practices that internalize specific social
and environmental costs.
Strategies for Responsible Investing
These three modes of investment are not mutually exclusive
and can be, and often are, interdependent. Many institutional
investors find themselves investing in most stocks of large
companies (publicly traded on major stock exchanges)
because of the sheer volume of funds that they have to place.
Most portfolios of this kind are indexed, placing them within
the “transactional” class. In this situation, disinvestment is
clearly an option for isolated cases, but is not a viable model
for widespread application. Such pervasive investing makes
engagement with investees an attractive option and links
together transactional and stewardship investment classes.
Finally, for such large investors as CalPERS and USS, the fact
is that different investments do impact on each other, bringing
the “universal investment” perspective to bear on investment
strategies already involving transactional and stewardship
elements.
Just as they can be combined, the three classes also offer a
“developmental” view on responsible investment. Transactional
investing mainly is concerned with establishing what investors
will not do (i.e., essentially when to “exit”). Stewardship
investing involves the use of the investor’s “voice”, allowing for
closer engagement and, at times, the use of formal
governance pathways to apply pressure for change. Clearly
the stewardship route allows the “exit” possibility to be present
as a background “threat of last resort”; yet the strength of this
approach is evident when investors “stay the course”, working
to enhance the management and overall performance of their
investees. Ultimately, universal investing is likely to be most
effective in handling the most extensive range of social and
environmental externalities (negative and positive) and offers
considerable leverage, certainly together with stewardship and
transactional elements. However in practice, the data, tools
and competencies to undertake universal investing in a
systematic manner are often lacking in the mainstream
investment community, a point to be further discussed below.
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