Partner Insight: Where might values-based investing be heading?

Royal London Asset Management’s (RLAM's) Mike Fox and Ashley Hamilton Claxton on some key trends – both positive and negative

clock • 3 min read
Partner Insight: Where might values-based investing be heading?

For RLAM's Mike Fox, Head of Sustainable Investments, the overarching positive change in the last few years is that "responsible and sustainable investing has an influence and cultural acceptance it simply never used to have."  According to Fox, who runs RLAM's sustainable fund range, "the corporate world now understands the potential financial benefits as well as the social benefits of responsible and sustainable investing - a big shift because if a company believes it might get higher valued equity and cheaper debt from improved sustainability practices then its philosophy is going to move pretty rapidly."

RLAM's Ashley Hamilton Claxton, Head of Responsible Investment, has recently been attending broker-arranged conference calls for issuers and says many firms are asking themselves how they can attract the new Environmental, Social and Governance (ESG) oriented investors. "Even the ‘dirty' companies are realising that this is now affecting capital flows and are reaching out," she says, though her advice to them is straightforward.

"Be honest and truthful, get your purpose right, get your North Star correct," she says, "and then get your business aligned with how you want to behave, and all of the data and information should flow from that. Tacking an ESG report onto the side of your business won't work: we'll see right through it."

RESEARCHING REALITY

Hamilton Claxton says that a parallel trend is also now clear. "The conversation is moving on from ‘what is the financial ESG risk of my companies or my funds' to ‘what is their direct impact on sustainability', in addition to any financial risk implications," she says. This shift is changing the approach of the Responsible Investment team - who work not just with Fox's sustainable funds but across RLAM's investment universe.

"We're thinking more broadly about how we can research, describe and measure the direct impact of large corporations on the world," she says, "and we're looking at new information in new ways."

"In those broker conference calls," she says, "I told companies that we can now buy algorithms and data sets that are scanning presentations, marketing documents, and news releases relating to your company to tell us what the sentiment is on your company, in real time."

DATA DOUBTS

More broadly, the availability of sustainability data is gradually improving and there is increasing pressure from investors and regulators to use that data to back up claims about sustainability.

"Sustainability analysis is on its way to becoming a lot more numeric versus qualitative," says Fox, "though it's a change we don't always agree with philosophically." Hamilton Claxton explains: "I'm a sociologist by background so my starting point is that not everything that can be measured matters, and not everything that matters can be measured."

She welcomes some aspects of the drive to quantify - clients like it and she can use data to try to prove to them that RLAM is doing what it says it is doing. "But it cannot be the end goal because data can be biased, incomplete or simply wrong. The move to quantify everything could really be dangerous if it ends up removing that human layer of judgment," she says.   

Click here to read more from the RLAM team on how values-based investment is evolving - and the strategic implications

INVESTMENT RISKS

Past performance is not a guide to future performance. The value of investments and the income from them may go down as well as up and is not guaranteed. Investors may not get back the amount invested.

IMPORTANT INFORMATION

For professional clients only, not suitable for retail clients. This is a financial promotion and is not investment advice. The views expressed are those of the contributors at the date of publication unless otherwise indicated, which are subject to change, and are not investment advice.

Issued in July 2021 by Royal London Asset Management Limited, 55 Gracechurch Street, London, EC3V 0RL. Authorised and regulated by the Financial Conduct Authority, firm reference number 141665. A subsidiary of The Royal London Mutual Insurance Society Limited.

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