Why old-style managers miss ethical investing potential

The recent news that Henderson, and more recently Aviva, are scrapping their SRI (socially responsible investing) teams is a symptom of a much deeper question which runs to the heart of the fund management industry.

Put simply, how does a large fund manager meet the demand from customers for SRI or ESG (environmental, social and governance) funds, while continuing to operate the rest of their business in the traditional way? Surely, the demand for SRI funds is part of a deeper cultural shift among consumers towards businesses that operate in a fully sustainable way, not just as a bolt-on offering or as part of a sales pitch.

Demand for SRI funds and ESG compliance isn’t going to fade away. There is no risk of this becoming a passing fad or a knee-jerk reaction to a booming finance industry’s excesses. In fact, since the financial downturn, the importance of emerging markets to the future of our industry and demand from clients for ethical and sustainable investments has grown stronger. Recent research from EIRIS, the non-profit sustainable investment research firm, showed that the amount invested in ethical and green funds topped £11.3 billion in 2011, representing more than 750,000 investors.

For the SRI approach to work, it must be incorporated into an investment manager’s DNA. It can’t be retrospectively applied to existing funds or incorporated effectively into new funds alongside established funds. Currently, the demand for SRI from consumers in Europe and the UK is stronger than in Asia; however, this will change. This is no longer a peripheral issue.

Ultimately consumer demand for ESG-compliant investment is growing and will lead to a fundamental shift in the way our industry approaches the issue of sustainability. With the advent of the multimedia age, the consumer is much better informed and more discerning about how it invests, still seeking the best returns but not to the detriment of the environment or emerging world economies. The consumer is more empowered with better knowledge and access to information, enabling it to take action and make more informed choices.

For investment managers like ourselves, where ESG compliance was one of the founding principles on which the company was created, the SRI sector offers boundless opportunities to grow, whether organically or through the acquisition of some of the SRI funds that are currently without a home.

Paul Robinson is chief executive of Alquity Investment Management.