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advancing sustainable investment strategies

January 2001

Socially responsible investment funds have made it possible to define broader strategies for sustainable development, says Tessa Tennant

Investors have a key role to play in tackling climate change. Using the model of socially responsible investment (SRI), they can influence the policies of many companies to support protection of the environment.

A key part of any SRI investment strategy is to back industries which fit with a sustainable future. The stock exchange of 20 years ago looks nothing like that of today. The stock exchange in 2020 will include large companies central to sustainable economies, such as mass transit, renewable energy, water management, healthcare and multimedia.

Many of today’s companies will no longer exist. Those that do will have prospered by merger and acquisition, and by using environmental and social pressures as business drivers. Companies which view these issues as a drag on returns will find life tougher.

The disclosure requirement for pension funds in the UK is already influencing the thinking of many financial institutions. This invisible revolution can transform the shape of economics, from the business-as-normal model which externalises all business impacts not judged commercially useful, to one that counts, and differentiates between, the total cost – environmental, social and financial – of doing business in different ways.

But there are things investors cannot lead on. These need the support of both government and society.

The initiative by the UK government’s Department of Transport, Environment and Regions to develop standard accounting methodologies for environmental indicators is welcome. The next step the government could take is to examine how to incorporate environmental risk assessment into actuarial evaluations.

It would also help if there were a clearer and more consistent line on environmental and social accountability and how this relates to disclosure requirements specified in the Turnbull guidelines and the company law review.

The investment community should also be working with progressive wings of industry to define targets for Rio+10 in 2002. For example, it could agree to ensure that by the next Earth Summit, in 2012, every saver on the planet had a sustainable investment option.

Investors are crucial to spearheading the scale of business response needed. There are now sufficient numbers of investors who recognise they must act in new ways to protect their assets – if only to hedge their bets.

This is an edited version of the Cherie Blair Millennial lecture
delivered by Tessa Tennant to an audience which included
Tony Blair, the prime minister, in December 2000.




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