Responsible Investor

Why lack of action on SRI is the biggest market failure ever.

Swedish pension fund AP7 says investors have a duty to follow international guidelines for responsible investment.

Even though environmental and social governance is gathering acceptance and momentum within the asset management industry, the question remains: why are the majority of capital owners and asset managers still standing aside?
Global warming is probably the most important issue of the century and different industries are developing their own answers for to the question sustainable development. However, the asset management industry has so far taken a conservative approach, to say the least. In addition, just a handful of capital owners have clear rules for environmental, social and governance issues (ESG). The vast majority is doing nothing. This is a great problem because who has more to say about corporate behaviour than the owners? By shouldering the responsibility that follows from investment, the asset management industry has greater potential than most to effect change in companies and consumers for healthy environmental benefits that could have a positive effect on future revenues. But, as so many times before, we face a battle between short- and long-term revenues and

perspectives. Can ESG aspects be objectively incorporated without jeopardizing an investor’s fiduciary responsibilities? Looking at the percentage of investors that actually incorporate ESG into their investments, one is tempted to draw the conclusion that the industry does not believe so. I believe this is wrong. There are many different views on how to engage with companies – negative/positive screening, etc. – and funds should be able to decide what approach suits them. However, I believe that there should be a minimum level of engagement where all companies follow the declarations, covenants and conventions adopted by the United Nations General Assembly. The reasons why UN agreements are a sound basis for most investors are two-fold. First and foremost, they have been commonly, and in a sense democratically, decided upon. There are very few professional asset managers that can claim the United Nations agreements do not reflect the views of their clients. Secondly, most countries have a domestic legal system to cope with national laws. However, there is no international court with a mandate to enforce global

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