Asset owners, asset managers, consultants and governments are struggling with what it means to be a sustainable investor with many finding the practical implications and applications of sustainability off-putting, according to Towers Watson research.
The global research project that derived these results was conducted in conjunction with Oxford University and was supported by 22 asset managers and eight prominent investment thinkers.
Roger Urwin (pictured), global head of investment content at Towers Watson, says: “While investors are finding this a challenging area, there are increasing rewards from investing sustainably. At a time when the investment world is changing so radically, investors now need to incorporate longer time horizons and adapt to the structural changes coming from economic, environmental, social and corporate governance factors to be successful. Strategies need to factor in the deleveraging cycle, under-powered economic growth, resource scarcity and ageing demographics in order to reach their performance potential. This advanced planning of adaptive strategies to secure good results for current and future generations of stakeholders lies at the heart of sustainable investment.”
According to Towers Watson, the research suggests a new way to think about sustainable investing and help investors overcome the governance challenges of implementation. It provides practical solutions and processes to enable institutions to become effective sustainable investors.
The research sets out a sustainability roadmap built on a framework of investment beliefs and governance structures. The roadmap combines the disciplines of finance and investment; governance and the legal framework of funds; and the science of resource scarcity and climate change to assess the financial implications for investors. Specifically it includes new strategies for:
• Organisational design of asset owners and the value chain
• Risk management framework and governance.
• Factor-based, thematic and asset allocation approaches for asset owners.
• Mandate design for asset managers.
Urwin says: “Most of the world’s asset owner governance is creaking under financial and complexity pressures. We are aiming to provide a roadmap that integrates sustainability considerations into investment decision making in a way that alleviates these pressures.
“The confusions in sustainable investing are crystal clear. Investors struggle with the long term when the short term comes first; and they ignore the extra-financial when it’s the financial that directly counts. The roadmap navigates using pure long-term finance, but does not lose sight of the short term and the extra-financial. This subject deserves our attention because it’s financially rewarding.”