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METRICS
METRICS for INVESTMENT
HAS BEEN ONLY ABOUT PROFIT AND WEALTH
NOW MORE ABOUT SOCIAL AND ENVIRONMENTAL SUSTAINABILITY AS WELL
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Changing Investment Regime
Over the last several years, there has been a massive increase in the 'talk' about sustainability and a significant increase in the effort to demonstrate that initiatives like ESG ... that is Environment, Social and Governance focus ... actually delivers improved investment performance.
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PLACEHOLDER
Investors ... that is the decisons makers that choose what investments to make ... seem to be guided by the idea that performance should be judged by the movements in the price of the investment.
At the same time there is a stong correlation between the profit performance of the underlying investment and the stock price.
And as well there is the reality that making significant changes to achieve better social impact and better environmental imppact will reduce profit performance.
Maybe governance translates a little bit through 'reputational' value into higher stock price ... but it is only a bit.
As long as this is lens through which decision makers make investment decisions, there will be minimal change in the say that investors deploy their resources.
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Global Sustainable Investment Alliance (GSIA)
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The GSIA definitions of sustainable investment, published in the Global Sustainable Investment Review 2012, have emerged as a global standard of classification. These are:
1. Negative/exclusionary screening: the exclusion from a fund or portfolio of certain sectors, companies or practices based on specific ESG criteria;
2. Positive/best-in-class screening: investment in sectors, companies or projects selected for positive ESG performance relative to industry peers;
3. Norms-based screening: screening of investments against minimum standards of business practice based on international norms;
4. ESG integration: the systematic and explicit inclusion by investment managers of environmental, social and governance factors into financial analysis;
5. Sustainability themed investing: investment in themes or assets specifically related to sustainability (for example clean energy, green technology or sustainable agriculture);
6. Impact/community investing: targeted investments, typically made in private markets, aimed at solving social or environmental problems, and including community investing, where capital is specifically directed to traditionally underserved individuals or communities, as well as financing that is provided to businesses with a clear social or environmental purpose; and
7. Corporate engagement and shareholder action: the use of shareholder power to influence corporate behavior, including through direct corporate engagement (i.e., communicating with senior management and/or boards of companies), filing or co-filing shareholder proposals, and proxy voting that is guided by comprehensive ESG guidelines.
The sum of these individual strategies, after adjusting for double counting since some assets are subjected to more than one strategy, results in the sustainable assets under management included in this report. In the report the aggregated figure is referred to as sustainable investment or investment taking into account ESG concerns, without making a judgment about the quality or depth of the process applied.
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TPB Note: The investment community has solved the problem of very weak reporting of important issues by the beneficiaries of investment, whether 'for profit' or philanthropic by complex and fuzzy processes such as the ones described above. What is needed is some very basic reporting by organizations that goes beyond simply financial reporting. There is a need for clear, simple and easy reporting about IMPACT on SOCIETY and IMPACT on the ENVIRONMENT.
What might this be?
One simple idea within conventional accountancy and financial reporting is that 'materiality' whould be applied.
Another is that there should be accounting and reporting that incorporates the full life cycle of all the products handled by the reporting entity
There are three drivers of impact that are almost always material:
(1) Energy ... the amount of energy used to produce the products sold by the organization (a) in the final stage; and (b) in the supply chain prior to the final stage.
(2) Material ... the mass of material used to product the products sold by the organization (a) in the final stage; and (b) in the supply chain prior to the final stage.
(3) Labor ... the total hours of labor used to produce the products sold by the organization (a) in the final stage; and (b) in the supply chain prior to the final stage and the pay scale profile of the total payroll
Each of these elements of cost may be converted to IMPACT using a 'standard value profile' (SVP) which is a basic representation of the impact that they have on ALL the capitals that make up the global socio-enviro-economic system, that is Social Capital, Natural Capital and Economic Capital. This SVP is a global average that is based on the world as a whole. It serves as a benchmark against which specific performance of an organization may be measured. If an organization chooses not to provide the more specific detail, then the benchmark SVP calculation provides a reasonable measure of the unsustainability of the organization.
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GSIA-Sustainable-Investment-Review-2016
'http://truevaluemetrics.org/DBpdfs/Investment/GSIA-Sustainable-Investment-Review-2016.pdf'
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Open PDF ...
GSIA-Sustainable-Investment-Review-2016
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PLACEHOLDER
A much enhanced way of thinking about investment performance is needed, one that embraces social. environmental and economic impact in a reasonably balanced way.
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