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Closing the gap in responsible investing

As more investors wonder how fund managers are weighing environmental, social and corporate governance factors in their investment decisions, the evidence that these factors can positively impact performance is growing.

This article appears courtesy of Global Investor

In many board rooms, discussions of Responsible Investing (RI) still focus on it as a mythical one-horse show—a perceived investment practice that must automatically limit the investment universe and thereby limit returns.

Over time, this perception is breaking down. In fact, an even larger number of pension committees now sit in board rooms to consider the merits rather than the limits of integrating environmental, social and governance (ESG) factors within investment processes.

By now, this group of forward-looking trustees knows that those increasingly familiar initials —RI, ESG—potentially relate not only to social conscience but also to improved investment performance and better risk management, though it has taken some doing to get to this point. October 2007 saw the publication of Demystifying Responsible Investment Performance, a joint report by the Asset Management Working Group of the United Nations Environment Programme Finance Initiative (AMWG UNEP FI) and Mercer.

Highlighting academic research examining the relationship between ESG issues and financial performance, the report helped to dispel the preconception that integrating ESG factors into investment analysis and decision-making automatically leads to financial underperformance (the majority of studies reviewed displayed a positive or neutral impact).

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