With Australia probably a few years behind the Europeans in the concept of socially responsible investment (SRI), it’s instructive to know that in Europe the SRI debate has evolved from ethical investment into a far broader concept of ‘sustainable development’. This assumes that economic growth has long-term prospects only if it is not achieved at the expense of man and the environment.
Sustainable investors, explains Wim Vermeir, head of Ausbil Dexia Asset Management’s Global Balanced and Sustainable Management team, seek companies that integrate positive ecological, industrial or social aspects in their long-term strategy. “Sustainable investing has, certainly in Europe, evolved significantly compared with the initial phase of ‘ethical’ investments. At that time, the approach was relatively negative and aimed at excluding certain operating activities, such as tobacco, alcohol, defence and the like,” says Vermeir.
On performance, Vermeir notes the majority of studies conclude that the return on sustainable investment strategies is not significantly different statistically in the long-term from traditional strategies.
He adds that returns may differ sharply in the short or medium to long-term.
“Sustainable portfolios differ altogether in their composition and possess different risk characteristics or style factors,” he says.
“Typically, sustainable portfolios contain relatively more growth equities and small caps.”
The divergent style factors of sustainable portfolios make it difficult to interpret the performance of sustainable investment strategies. “The relative performance of sustainable portfolios is, after all, determined in the short and medium to long-term more by the relative performance of growth equities, on the one hand, and small caps, on the other hand, than through the sustainable strategic positioning of the firms themselves,” says Vermeir.
As in Australia, Vermeir notes the main factor inhibiting European pension fund investment in SRI is that it is still a new concept with a limited track record. But he is convinced the growing relevance of ecological and social issues in public debate will heighten the pressure on funds to provide sustainable investment options.
