Hugh Wheelan: here are some answers to capitalism in crisis

A look at a hedge fund, a politician and other investors who are laying a path for sustainable finance.

Paul Tudor Jones, the US hedge fund titan, said recently that capitalism needed modernising opining that ‘inequality’ has changed the game from 50 years ago when Milton Friedman was writing (with caveats) that the only “social responsibility of a company is to improve its profits.”
Tudor Jones may not be your average hedge fund manager – he has a penchant for taking money from the rich (like himself) to give to the poor via his Robin Hood Foundation, a charity to alleviate poverty in New York – but it says something when hedge funds are recognising inequality as a barrier to growth.
But, how to change the problem at source to make capitalism promote equality and economic success more broadly?
We haven’t seen much sign of movement recently, but a speech titled Capitalism in Crisis, by Sir Vince Cable, Leader of the UK Liberal Democrat Party is a decent pointer on direction that taps into many of the pragmatic themes of responsible investment. Apologies that it’s a little UK-centric, but the recommendations are universal.
It’s refreshing to point to two pieces of good news. The first is the increasing visibility of the new Global Research Alliance on Sustainable Finance and Investment (GRASFI), put together by a consortium of more than 20 top universities around the world, and with an Organising Committee currently co-chaired by Professor Rob Bauer (Maastricht University) and Dr Ben Caldecott (University of Oxford). The aim of GRASFI is to ratchet up the quality and quantity of academic research in sustainable finance, which will broaden the economic literature on sustainable finance and deserves industry backing.The second is to give serious ESG credit where it’s due. Swiss Re has produced what I think is the best, briefest and most factual report outlining what has happened to its investments since it switched to ESG benchmarks in 2017 in order to apply ESG considerations to 100% of its $130bn investment portfolio. BIG BIG money as Donald Trump might tweet.
In short, its analysis shows that long-term risk-adjusted investment performance is more favourable when ESG criteria are taken into account.
It’s well worth a read and distribution to your networks: Link to Swiss Re report
There’s little I can add to Swiss Re’s conclusion: “As long as ESG is not yet an integral part of all financial analyses, investors need to make an effort and actively integrate sustainability considerations in their investment decisions. But this should be in every investor’s interest as ESG risk is not fully compensated by the financial markets either. The ability to consistently integrate ESG considerations into the investment process and that the financial markets reflect ESG risk entirely, requires clear definitions and methodologies, as well as regular and standardised reporting on ESG risk. We are encouraged by the experience we have gained with integrating ESG criteria and will further progress on our journey. We expect responsible investing will further advance, enabling us to adapt and improve our current approach. Actively taking ESG into account offers far more opportunities than investors are exploiting today.”
Another excellent report that’s caught our eye here at RI is the sustainability report of the Edmond de Rothschild Group. This report ticks so many boxes: senior management buy-in, staff input, real human capital, genuine sustainability intentionality and measurement, serious ESG integration, that it looks like best practice to us. Bravo. If we’re going to change capital markets for broader, more equitable growth, then such commitments, research, reporting, self-assessment and lucid sustainable business rationale, require our support.
Read the Edmond de Rothschild report