Long Term Positive Themes will Reap Rewards
So much of the mantra surrounding responsible investing lies in the idea that an investor is best served by taking a longer term view. The question is therefore; ‘can better value be delivered that way both for the investor and society.
Professor John Kay certainly thinks so.
Professor Kay CBE is an eminent British economist, who recently carried out a review for the Government on just this subject. I was lucky enough to hear him speak at a recent seminar hosted by the fund manager , ‘First State Investments’. During the seminar Professor Kay explained why over the last 20-30 years investors had been increasingly let down by the short-termism of markets and operators. He went on to state why there was need for change and why there is a need again to allocate capital for real needs in society, which in turn will offer real financial value.
He pointed out how stock markets had become so reliant on secondary trading and so little concerned with producing real value. The statistics are frightening. For example over the last few years world markets have effectively traded between $70 and $100 for every dollar of real underlying value.
What are Markets For ?
He then suggested there were 4 principle roles for financial markets.
- To operate a payment system
- To help manage risk
- To manage wealth through investors lifetimes
- Most significantly- To allocate capital
He emphasised this last area because it’s one which fund managers desperately need to re-learn. In particular he refers to the need for Search and Stewardship
Searching for those areas that really offer long term value for society and the investor.
Stewardship – to ensure that capital is looked after effectively to meet these needs
This is happening now !
There are real signs that this is not just theory but is working right now ! A good example of this would be WHEB one of the first retail fund managers to produce an ‘Impact Report’. This looks at the environmental and social impacts of the group of holdings it invest in. These holdings are spread across nine positive themes including Cleaner Energy, Sustainable Transport and Resource Efficiency. Impacts are then measured across the different themes as well as against the fund as a whole.
For example the overall carbon footprint of the fund was 92 tonnes of CO 2 per £1m invested compared with 282 tonnes per £1m for the market as a whole (based on the MSCI World Index). Interestingly financial results showed that the 5 year Historical Sales Growth for the group of companies in the fund had significantly out-performed the wider market. In other words responsible fund managers are showing that investing in positive long term growth areas is reaping rewards for the pocket as well as society.
This is not just theory !
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