2 minute read
Pandemic exposes home truths about critical need for responsible investment
KHAYA GOBODO, Managing Director, Old Mutual Investments
Asset managers are in a unique position to make decisions that influence the economy, the environment and society as a whole. As an industry, they direct a material portion of capital flows in the economy, and so have a genuine interest in ensuring that the economy sustains itself. Critical in this work is an appreciation of the interconnected nature of the economy, society and the environment.
The continuing COVID-19 pandemic has heightened this awareness and laid bare the vulnerability of the economy to outside biophysical system shocks. A measure of this vulnerability is the scale of fiscal stimulus presently being rolled out around the globe, far outstripping the stimulus packages post the 2008 global financial crisis. There are questions to be asked around how this capital will be deployed. Will it be directed to enable more of the same kind of economic growth and its attendant social and environmental system risk? Or will it be used to build back better in a manner that drives socially inclusive, low-carbon and resource-efficient growth?
Asset managers will have to choose which side of the fence they sit on in respect of this issue. The side they choose could well define their future prospects. This is all while focusing on the fiduciary responsibility to act in the best interest of clients and deliver investment outcomes that meet or exceed their expectations.
Capturing the green growth and build-back-better opportunity will require collective action by asset managers, asset owners and asset consultants. As industry partners, we have the responsibility of understanding the impact of our investment and stewardship decisions on society and the environment. A critical element of this will be formulating long-term partnerships based on measurable sustainability outcomes. Asset managers will not only need to engage proactively with investee companies on sustainability issues, but will similarly need to engage asset owners on their views.
Seeking alignment on these issues, solutions that deliver appropriate risk-adjusted returns and impact will remain at the forefront of innovation in the asset management industry for the foreseeable future. Long-term partnerships will be a key to success here, as will the ability of managers to collect and report on ESG impact metrics. For asset managers, it is clear that it’s no longer enough to only focus on providing appropriate risk-adjusted returns, excellent client servicing and competitive fees. The type and scale of impact will rightfully also become an important consideration when selecting a long-term partner.
Furthermore, we expect large-scale asset owners, with long-term time horizons, to start exercising their fiduciary right in a more co-ordinated fashion. As such, an important means of driving impact in the listed markets is through active stewardship. This is a material opportunity to drive market transformation while, at the same time, reducing long-term systemic risk.
While we cannot possibly anticipate all the factors impacting the asset management industry going forward, we can be sure that the COVID-19 pandemic has strengthened and hastened the pre-existing trend of responsible investment and green growth.
