Heartland promotes the greater adoption of responsible investments among pension funds and the institutional investment community. To help clarifiy ideas about the field, we discuss relevant information on responsible investing and its correlation with financial returns

What Is Responsible Investing?

Responsible investing, alternatively referred to as socially responsible investmenting, social investing, ethical investing, or more recently, impact investing - simply put, refers to the pursuit of competitive risk-adjusted rates of return alongside the inclusion of material Environmental, Social & Governance (ESG) analysis into investment decision-making and ownership practices. We identify with the following key characteristics of responsible investing:

 

Best & Worst Investment Practices

 Best Investment Practices 

  • Focusing on preserving capital first, then trying to grow it

  • Investing for the long-term, rather than chasing short-term performance goals

  • Conducting appropriate due diligence on the risk-return characteristic of investments

  • Making rational asset allocations (diversifying, undertaking appropriate risk)

  • Investing for the long-term economic benefit of workers, retirees and their beneficiaries

  • Taking into account material ESG considerations that may impact an investment’s expected financial performance

  • Conducting diligent follow-up and monitoring of investment managers and advisors and corresponding investments

     

 Worst Investment Practices 

  • Chasing short-term performance goals and/or engaging in speculative investments

  • Investing workers’ capital in fad investments without adequate consideration to downside risk

  • Stripping and flipping companies (bad private equity investments/LBOs)

  • Investing in companies with poor ESG track record or no record at all

  • Investment herding so that investors are not “wrong and alone”

     

 

Investment Opportunities

Capital can be invested responsibly across a spectrum of asset classes and investment products – from traditional asset classes of public equities, bonds, and cash to alternatives asset classes of private equity, real estate, and infrastructure investments, among others.

In the case of traditional asset classes, responsible investments may be made through, for example:

  • Public Equity investments in pooled and mutual funds or individual public listings

  • Bond investments in corporate, government and/or municipal bonds, as well as green bonds

  • Cash investments in responsible banks, Community Development Financial Institutions (CDFIs), money market instruments or certificate of deposit

Within alternative asset classes, responsible investments may be made in, for example:

  • Private Equity investments in venture or growth capital that revitalize the industrial commons

  • Real Estate investments in urban revitalization, affordable housing development, or union-based job creation, that develop and renew the built environment, support minority projects, or invest in clean and renewable energy

  • Infrastructure investments in clean-tech, green infrastructure or sustainable materials that grow the clean economy

 

Financial Returns

Do responsible investment considerations enhance or detract from the financial value of investments? Is there a strong financial and competitive case for corporations to include sustainable practices in the management of their business? Can a corporation positively serve all stakeholders – customers, employees, shareholders, suppliers, communities, and the environment they inhabit – while simultaneously pursuing its   business   mission?   The  answer  is  a  resounding  “yes,”  in  terms  of  both  responsible  investment considerations and good corporate governance.

 

This conclusion is based not only on anecdotal references by investors and corporations, but also an increasing number of strenuous research studies by academics and industry experts in the field. 

 

These studies have found, in the aggregate, overwhelming evidence of the positive impact of responsible investment strategies on a company’s operational performance and share price value. We present a sample of these studies with the aim to refute a pattern of oft-heard claims that responsible investments, by their very nature, result in concessionary returns.  Or, that investors concerned about E, S and G wrongly trade off financial performance for their social values. As recent research proves, the reality is quite the contrary.

 

 

Knowledge Center

Heartland has aggregated lists of responsible investment friendly organizations, global best investment practices, and a glossary of relevant terms.

 

CONNECT WITH HEARTLAND

Tel: 412.342.0534 | heartland@steelvalley.org

1112 S. Braddock Avenue, Pittsburgh, PA  15218

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