For NN Investment Partners, “responsible investing” refers to asset-management approaches that recognize the importance of environmental, social and corporate governance (ESG) factors in assessing the risks and returns of investments. Encompassing all asset classes, responsible investing is a broader approach to investing than sustainable investing and socially responsible investing (SRI), which generally encourage or exclude certain activities. At NN Investment Partners, it stresses active engagement with companies we invest in and full integration of ESG factors in all investment processes. This mentality is now embedded in the NN Investment Partners culture to such an extent that responsible investing has become common sense investing.
Assets under management based on UN Principles for Responsible Investment
Even more telling, though, is the level of ESG awareness throughout our entire investment culture. Detailed ESG information is readily available throughout the organization. Our analysts have incorporated ESG factors in their investment processes across equities and fixed income, and are taking continuous steps to increase their knowledge further. Moreover, our top management is strongly committed to providing the resources to stay ahead.
“The overall approach results in a better performance,” says NN Investment Partners Chief Investment Officer Hans Stoter, who also heads the company’s ESG Board. “We aim for an optimal ratio of risk/return in our investment portfolios, and greater consistency and stability for the longer term. Our clients benefit from this.”
Responsible investing is steadily and irreversibly moving into the mainstream investment arena, and with good reason. Corporate behavior has an impact on some of the world’s biggest social and economic challenges. Issues such as poverty, joblessness, pollution, climate change, water shortage and public health, and the ways that companies address them, are becoming priorities for more and more investors. The way that companies adapt and respond to these challenges can have significant impact on companies’ financial performance, investor perception and therefore market value, and consequently on the return of investment portfolios.
Change that brings opportunities
Companies that are quick to grasp this change in awareness and attitudes are responding by taking steps to benefit from the opportunities that the change brings with it. These steps may include the development and marketing of products that are energy efficient or that help empower workers in low-wage countries, for example. The introduction of environmentally friendly production processes is another such response. These sorts of corporate steps can strengthen companies’ brands and enhance their reputations with employees, labour organizations, regulators, non-governmental organizations that monitor the sector in question, the media and the public at large. On an even more tangible level, ESG-related measures can help a business reduce costs and enhance revenue. A mining company that takes steps to maximize worker safety, for example, might well avoid a major accident that would necessitate costly repairs and or even force a mine shutdown that would halt revenue flows altogether. The net effect of these sorts of company action is often one that is positive for the company itself as well as for all its stakeholders, including investors.
Even aside from investment performance considerations, pension funds and other institutional investors need to be able to explain their investment policies clearly to their members. Shareholders are increasingly being called to account in the media with respect to their roles and responsibilities in company affairs; no institutional client wants to be on the wrong side of the table when it comes to investing in controversial companies.
As a result of these trends, the entire sector is paying more attention to ESG factors and interest in sustainable investing is increasing. A recent study by Eurosif, the pan-European organization for SRI , shows that responsible investment strategies are growing at a faster rate than the broad European asset management market across all asset classes. Investors increasingly acknowledge that a sustainable investment approach can offer long-term risk-adjusted performance advantages.
While growth is evident in all client segments, institutional investors continue to drive the market. This has resulted in very strong growth in Responsible Investing in recent years. According to the United Nations, close to USD 60 trillion of worldwide assets are invested according to its Principles for Responsible Investing (see graph). National and European legislative developments will also support future growth.
No longer an “either/or” choice
Until recently, conventional wisdom held that concern for ESG factors would have a negative impact on investment returns. Many investors believed they were faced with an “either/or” situation – they thought they could either invest responsibly or maximize returns, but not both. As this mindset gave way to the view that responsible investing is not only compatible with but also an integral part of sensible investing, the importance of ESG considerations has come to grow in the past decade.
A robust ESG approach has become a prerequisite for asset managers to operate in today’s market; a strict focus on financial returns with no regard for companies’ environmental, social and governance records, policies and performances is becoming a thing of the past. Clients are seeking a broader-based balance in their investments and are becoming increasingly aware that a thorough ESG analysis can improve their risk/return profiles. With this in mind, NN Investment Partners continues to refine its investment process and develop products that meet these changing needs.