In recent years, the concept of responsible investment (‘RI’) has started to gain traction across our industry. But as markets continue to transform – driven by shifting regulation, technological development and the changing needs of institutional investors – how should we think about building responsible strategies for the long term? Institutional investors are increasingly asking this question, faced with a tough challenge in de-coding a varying set of responses from the asset management community. Indeed, despite progress in recent years, there remains little consensus about what responsible investment really means, or what it will take to ensure that these principles remain in focus through time.
This article sets out three elements which we believe are important in responsible investment. First, responsibility around environmental, social and governance (‘ESG’) factors must be integrated into mainstream investment processes, rather than used to create niche ‘ESG-labeled’ products. Second, we believe asset managers must be prepared to work flexibly with clients to determine the best ways of implementing RI – in everything from strategy design to the investment process itself. Third, and most important in our view, our industry must reconcile RI considerations with our broader responsibilities to investors – and in doing so, make the case for responsible investment in the context of performance, and even as a potential source of alpha. We believe that these principles can help support the case for responsible investment over the long term, and guide our industry’s approach along the way.