We recently sat down with AHIC’s Head of Responsible Investing, Emerging and Diverse Managers, Meredith Jones, to talk about industry trends, opportunities and challenges, and what’s keeping her busy these days. Below is part 2 of the conversation, continued from the last issue of Connections.
1. Is there one particular investor group/ type that is driving the growth in responsible investing?
Not really. Interest is fairly widespread, although we have noticed that the more interactions an organization has with millennials, the more likely the issue is to come up. In addition, the closer an organization is to having a true mission, the more likely it is to have RI interest or implemented RI policies and investments.
2. Institutional memory reminds us that while RI gained great interest at the peak of the last market cycle, discussions were put on the back burner when the financial crisis hit. Should investors that are exploring RI be concerned that these discussions could dry up again? Or could this time be really different?
The advent of ESG integration is a real plus for RI this time around. If, as early research indicates, a company with strong ESG factors will tend to outperform and do so with less volatility, it makes sense in good times and bad to seek out these types of investments. In addition, during a financial crisis, philanthropy can decrease as donors feel the pinch of economic crisis. However, with more impact investment opportunities available, it may be that philanthropically inclined investors can have their cake and eat it, too. Now they can choose from a larger menu of investments that could generate an investment return for them as well as their broader community. I would think these investments would also continue to be attractive options in a market downturn.
3. Tell us what are the challenges or hurdles you see investors face when considering RI implementation. How have we been helping clients address them?
The main challenge investors face is a lack of understanding about the broad range of solutions involved in RI. For example, one person on an investment committee may understand RI only in the context of divestment or negative screening, and that can put the kibosh on all types of RI activities within that organization. Part of our role is to help investors understand the broad universe of RI investments and how each of them could (or can’t) work within their investment objectives. This means we must provide clear definitions and use cases for investors, as well as materials they can circulate to a broader group of stakeholders to obtain buy in. We’ve published a number of pieces recently aimed at doing that, including an animated, fiveminute video explaining the various types of RI. We’ve also recently rolled out ESG integration ratings for buy-rated fixed income and equity managers in an effort to help investors understand where they may already have exposure to RI.
4. Is there any correlation to the growth in RI at the same time that gender lens investing, diversity investing and the like have gained greater attention?
As I mentioned before, diversity and RI are close cousins. I think that both are getting more attention now as it has become increasingly clear how gender, diversity, and ESG/RI are tied to corporate performance and overall economic prosperity. At the end of the day, the majority of our clients are fiduciaries and they have to obtain the best economic outcome for their stakeholders. Focusing on these types of issues has the potential to help.
5. How do you see your role evolving over the next 3-5 years? Where do you see the RI industry or hope to see it in the near-term and longer term?
I think we will get to a point where ESG integration is a given among money managers, and where the range of values-based investment tools, including impact investments and socially responsible investments, will be vast and completely customizable. Investment managers from the largest firms like BlackRock and State Street to the smallest startups are paying attention to RI and developing funds to address investor needs and pressing global issues. As a result, I think it’s a really exciting time to be in responsible investing.