Act with integrity or be punished by the market: Being responsible investors vital in today’s economic landscape

AJ Gonzalez | February 21, 2021

Investment Week, Martin Gilbert, 18 February 2021

The best way to rise from the pandemic’s ashes

2020 was a year to forget for so many reasons, but it will also prove to be an important turning point and a welcome call to action for the investment industry.

Covid-19 has had a devastating impact on the UK and the world. We have lost family and friends (more than 2 million people have sadly died from the virus globally).

To contain its spread, borders have been closed, social distancing rules have been implemented and our mobility restricted.

Large parts of the economy have been shut down, growth has nosedived and unemployment has shot up. As the vaccine rollout continues and restrictions are gradually lifted, I am optimistic the UK and global economy will recover, aided significantly by ongoing fiscal stimulus.

Of course, some of the businesses most severely affected will not survive. In part, due to our consumption habits irreversibly changing, such as the rise of online retail.

Another structural shift has been the acceleration and deepening of interest in sustainable investing. Beneath its many guises – such as green and ethical – it is not new and has attracted investor interest over the years.

But the pandemic has been a wake-up call for many and has materially changed their objectives when it comes to investing.

As well as financial returns, they are also now much more interested in how the businesses they invest in make a profit; how they treat their other stakeholders, such as employees, customers and suppliers, and the impact they have on the environment and society.

This was evident recently when investment consultancy Bfinance released a survey of 256 asset owners around the world with combined assets of more than $7trn.

More than 60% of respondents in the poll stated they were unlikely to hire an equity manager who is not a signatory of the Principles for Responsible Investment.

It is not only institutional investors who are focusing on environmental, social and governance (ESG) issues. The shift is also apparent in the wholesale and retail parts of the market.

Earlier this month, Morningstar’s European Sustainable Landscape report showed sustainable funds in Europe attracted €233bn in 2020, nearly twice as much as in 2019 and ten times the level five years ago.

Many asset managers will say that ESG considerations have been embedded in their investment processes for years. According to Door, a specialist in due diligence within asset management, over 85% of the strategies on its platform incorporate ESG principles.

But now more than ever, managers will have to walk the walk rather than just talk the talk. This is very welcome. Investing is not solely about profit, it is about improving society through responsible, public-spirited wealth creation.

My all-time fund management hero, Sir John Templeton, said: “The market economy depends for its survival on the personal integrity of those acting within it. People who don’t act with integrity are also punished by the mechanism of the market.”

Martin Gilbert is co-founder and former CEO of Aberdeen Asset Management

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