The financial industry’s reputation has taken a massive hit as a consequence of the recent financial crisis. In fact, the recent Leonardo DiCaprio starring blockbuster, The Wolf of Wall Street, does a great job in presenting all that was and still is wrong with the industry. Even in business schools around the globe, fewer students are vying for the traditional finance jobs offered by investment banks and hedge funds.
However, Responsible Investing (RI), also known as, Socially Responsible Investing (SRI) or Ethical Investing, has the potential of repairing this lost reputation and providing MBA students with an opportunity to work in the field of finance and at the same time, have a positive impact on society.
Responsible Investment is an investment approach that acknowledges the importance of environmental, social and governance (ESG) factors, and the long-term health and stability of the market as a whole and the role companies play within that market. In very simple terms, the idea is that the companies who are careful about their reputation and the impact they have on society and the environment are better companies to invest in.
Until recently, the implications of sustainability issues for investors and financial markets were poorly understood and largely overlooked. However, the financial crisis has made more and more people aware of the importance of considering good corporate ethics, governance and environmental issues when examining any investment. RI is fast moving from being a niche in the asset management universe to increasingly becoming mainstream, with more than $3 trillion in assets under professional management in the U.S. alone in 2010, according to the Report on Socially Responsible Investing Trends by US SIF. This represents a 13% increase in assets under management between 2007 and 2010, while the broader universe of professionally managed assets grew by less than 1 percent over the same period.
The importance of Responsible Investing is also reflected in the fact that it is not anymore the realm of only SRI focused funds, but is also an integral part of the investment process of the largest investment funds and asset owners. For example, Norges Bank Investment Management (NBIM) (that manages the €595bn Government Pension Fund, the largest sovereign fund in the world) has set up frameworks to analyze companies’ reporting on climate change risk management, water management and children’s rights. According to NBIM, “By assessing a large number of companies’ reporting against a common set of indicators, NBIM has built an in-house data set that can be used for company screening, sector analysis and market analysis, amongst other things.”
RI is a way to generate competitive returns and find sustainable solutions to many of the challenges we face in the 21st century. The panel on Responsible Investing at the Doing Good Doing Well conference, on 21st and 22nd February 2014 at IESE Business School, will look at this burgeoning industry from the point of view of the major stakeholders involved. The panel will bring together asset managers, corporates, non-profit organizations and academicians, to discuss the current status, challenges and future opportunities in RI, and therefore, will be an excellent learning and networking opportunity for both students as well as practitioners who want to learn more about this dynamic and rapidly growing field.