Pictet Asset Management's Laurent Ramsey argues that investors can better manage long-term risks and seize growth opportunities by integrating environmental social and governance criteria into their investment framework.
Since the creation of the UN Principles for Responsible Investment in 2006, responsible investment has evolved from a niche activity into a mainstream approach: the development of ESG ratings by Morningstar and investment consultants are indicative of institutional investors' desire to better understand how their money is invested and to share their convictions publicly.
More recently, individual investors, family offices and foundations have embraced similar principles, showing a growing desire to invest in a more responsible form of capitalism. We believe that this phenomenon results from a number of unrelated trends.
We see three basic options for investors to mitigate the risks and seize the investment opportunities arising from these trends. As a minimum, we believe that every investor should be better equipped for detecting ‘torpedoes' in core portfolios.
In all cases, time is of the essence. Investors constantly need to resist the pressure of short-termism or the temptation to treat companies like commodities. We also see a need for specific metrics to measure portfolios' ESG characteristics such as their carbon footprint.
There is no one size fits all, but the longer the time horizon, the greater the likelihood that responsible capitalism represents the best way for investors to achieve long-term success.