Responsible Investing

Why investors should be concerned about a dam bursting in Brazil

The Responsible Investment Association of Australia state “Responsible investors all understand that companies or assets won’t thrive whilst ignoring environmental issues (pollution, climate change, water and other resources scarcity), social issues (local communities, employees, health and safety), corporate governance issues (prudent management, business ethics, strong boards, appropriate executive pay) or ethical issues.”

On November 5th, 2015 a dam co-owned by BHP burst, killing 13, injuring hundreds and impacting thousands. Brazil’s government has subsequently filed a law suit against BHP and Vale for $5.2b USD to compensate those affected. Investing ethically is no longer about being a ‘green, tree-hugging hippie’, it is about understanding that companies who cause catastrophic disasters will be hit where it hurts, usually in the form of billions of dollars, which in turn, hurts the shareholder.

BHP price post 5th November 2015

BHP

source: Bloomberg

 

How Sustainability Can Drive Financial Outperformance

The University of Oxford and Arabesque Asset Management have undertaken a study which analyses the links between “responsibility and profitability”. There is a drive for transparency for the stockholder. Here are some examples:

  • Vehicles have CO2 emissions listed as a standard (Volkswagen anyone?) – Now France have introduced mandatory carbon reporting on financial institutions. Imagine when you are considering a managed fund, say a KiwiSaver fund, comparing fees, performance, investment style and carbon emissions!
  • Screening of industries, historical ‘black listed’ stocks have been tobacco, fossil fuels, gambling, alcohol, human rights abuses, pornography, weapons and now… sugar.
  • Some of the largest sovereign wealth funds are ‘divesting’ their portfolios of various industries, such as the Norwegian Government Pension Fund dumping 122 coal company stocks.

Report Highlights

ESG

Source: Arabesque.com

 Responsible Investment Returns

SRI funds

Source: Responsibleinvestment.org