How might US policies impact global responsible investment trends?
This is a fundamental question that boards need to be asking themselves. There has been a significant shift in the political backdrop for ESG (environment, social and governance) and sustainable investment recently. Financial institutions are caught between addressing real-world climate risk and escalating political opposition to sustainability. This has seen companies rolling back diversity, equity and inclusion (DEI) programmes and climate initiatives to avoid any political backlash.
There is no doubt that US politics over the next four years is going to influence investment trends, especially for those in the mainstream responsible investment arena. Deregulation in the energy sector, for example, and the threat of government criticism, will be a significant consideration for investment decisions. But responsible investing is about sound, risk-adjusted investment.
Executives still agree that companies should be required to include sustainability metrics in their reporting, while the Securities Exchange Commission has ruled that banks cannot exclude climate or socially related shareholder proposals.
Consequently, investors need to look beyond the current political trends. They might need to adjust their language a little, but they still need to drive companies to act in a responsible manner for the betterment of people and the planet.
How can charities future proof their responsible investment strategies against political and economic volatility?
Irrespective of the political climate, it is important to future proof your investment strategy, while remembering that the responsible investment policy is reflecting the values of your charity, and provides reputational safeguards. Irrespective of the political or economic climate, your values must hold true.
When it comes to investment strategy, an investment manager needs to factor in geopolitical conditions, while making sure that the clients’ values are adhered to. There will still be volatile periods where clients will see outperformance and underperformance from their portfolios – but it’s the long-term that is important.
How can charities ensure they are engaging in meaningful responsible investment rather than just following trends?
Charities should consider how to use their investments to make positive change and contribute to positive outcomes while working within regulatory frameworks. Definitions can be broad and will change over time. Terms and acronyms that we used 10 or 15 years ago, such as “mixed motive investing”, for example, you very rarely hear anymore. Frameworks will change, but by periodically reviewing how you integrate those frameworks into your mission, you can always bring it back to what’s important for your values. Make sure whatever the frameworks are, they are clear, actionable and measurable. Whether it is called ESG criteria or a different acronym, they should clarify core objectives and what’s going to be meaningful and measurable for the organisation.
It comes back to that long-term quality and leveraging expert advice and partnerships. At the Rathbones Group we regularly review policies and frameworks to define the language and determine what our clients, and wider society, are looking to achieve over the next years or decades.
How should charities prepare for changes in ESG-related regulations?
It depends on how the financial regulator and the Charity Commission interrelate. The CC14 guidance is helpful and whenever that gets updated it is important that it is kept at the forefront of the investment committee’s considerations. The FCA’s Sustainability Disclosure Requirements (SDR) and the anti-greenwashing rules continue to be fine-tuned. As advisers and investment managers, we provide guidance to our clients along with trustee training so that they are as informed as possible.
When we look at what’s going on more broadly, we are seeing regulatory pushback, both in the UK and the US, especially around DEI and climate change. But notwithstanding, human rights are still centre stage and investors should expect due diligence throughout supply chains. Charities can play a big part in using their voice to be at the forefront of those issues and influence change.
There should also be consideration of the timelines involved. Some of these regulations take a long time to come through. That is useful because this makes sure that they limit unintended consequences. So you need to be aware of what is going on in the background so that you can future proof your responsible investment strategy. It probably doesn’t change fundamentally how you are thinking about your investments, but it does help you understand the parameters in which to operate.
How can charities communicate the importance of responsible investment to stakeholders who may be sceptical?
It comes back to understanding the values of the organisation and then reflecting those values in the investment policy and portfolio. It is about having that consistency across the investment piece. The discussion around responsible investment has moved on and most scepticism, especially around lower returns, has been dispelled.
We are increasingly aware that investing in companies that are proactively addressing sustainability factors reduces risk and provides long-term protection for portfolios. There will be short-term volatility, as there is with all strategies, but there’s lots of evidence that shows that as long as you can pivot on some of the broader market trends, responsible investment can provide strong financial returns through the cycle. As with any investment strategy, you must continue to consider where market momentum is and be aware of those different cycles. But the long-term underlying principles and protection against reputational risk means that a responsible investment strategy is beneficial, both to the organisation and to the investment outcomes stakeholders wish to achieve.
For further information please contact Charities Business Development Director, Mark O’Connor – mark.o’[email protected]
Fast facts
Expert charity investment management
Managing over 3,000 UK charities and not-for-profit organisations
£9.3bn charity assets under management
Local support and national reach with 22 dedicated offices across the UK
Specialist ethical and sustainable investment team, Greenbank
*All figures as at 31 December 2024
What we do
Our specialist charity investment managers are dedicated to helping you help others. Charities have entrusted their investments with us for over 100 years, and our dedicated approach has seen Rathbones become one of the leading investment managers for charities and not-for-profit organisations in the UK.
Related articles
