Since the start of the pandemic, the most sustainable companies seem to have held up well. This resilience also stems from non-financial performance, resulting from the development of socially responsible investing (SRI), as explains Pascale Forde-Maurice, who works in the sustainable banking team at Crédit Agricole CIB.
What is socially responsible investing?
Pascale Forde-Maurice – Socially responsible investing (SRI) is unique in the way it takes into account financial and non-financial criteria. Beyond looking for profit, responsible investors turn to companies that have a sustainable development approach. This is based on three pillars, environmental, social and governance (ESG).
Environmental criteria measure the positive impact, direct or indirect, that the company has on the planet, the climate and biodiversity.
Social criteria examine the positive impact the company has on local communities but also on society as a whole, via, for example, measures to protect employees, actions to fight poverty and discrimination, inclusion, etc.
And governance criteria assess whether the company is well managed, in terms of transparency, fair treatment and anti-corruption.
Most of the time, ESG assessments are carried out by special analyst agencies that review the company’s publications and annual reports. By using these criteria, investors can ensure the company’s responsibility extends to its positive impact on society.
Beyond looking for profit, responsible investors turn to companies that have a sustainable development approach.
Why do investors choose these companies? Which sectors are affected?
P. F-M. – A company that meets ESG criteria performs better in the medium and long term. It is better equipped for the future thanks to a detailed analysis of its ecosystem and a precise assessment of its non-financial risks, so it therefore offers greater growth opportunities.
It is also important for investors to focus on companies that embed a strong CSR ambition in their strategic decisions.
Indeed, incorporating ESG criteria into the investment strategy often makes it possible to guard against reputational risk and poor management of environmental and social risk.
Today, sectors related to oil or raw materials are strongly scrutinised by these investors whereas health and technology companies are popular.
2020 raised awareness of the key issues of digital inclusion and the role of technology within the environmental agenda: the rise of remote collaboration tools shows us, for example, that we can work together effectively without traveling!
The ICT sector therefore has an essential role to play.
Are these funds also more resistant to crises? Are they a safe haven?
P. F-M. – The crisis has shown that SRI stocks are less vulnerable to market vagaries. Companies that have integrated non-financial risks into their strategy are able to respond more quickly and effectively in the event of a crisis. Good employee management, team cohesion and ongoing dialogue with local communities are also key factors in their agility: diversity promotes multiple points of view and improves the ability to adapt.
Finally, responsible investors tend to keep their assets despite economic turmoil because their approach is long-term. In this way, they can support companies through difficult times.
What is the impact of socially responsible investing on employment, reducing inequalities and responding to climate change?
P. F-M. – The commitment of SRI financial players is a sign of the deeper movements initiated by civil society and political forces. It is a virtuous circle: investors want ethical values and encourage companies to develop a fairer and greener business model, while encouraging States to put in place mechanisms that promote responsible investment. The development of ESG and SRI criteria also makes it possible to compare economic players, to sort out the “good” and “bad” performers. It certainly accelerates explicit commitments to ensure a more sustainable world.
Carbon intensive sectors, such as oil and gas, are therefore strongly committed to carbon neutrality.
Is SRI set to become the norm?
P. F-M. – Indeed, the movement is accelerating, with growing asset volumes. In Europe, the SRI investment community is now as large as that of so-called conventional investors.
The European Commission is also encouraging this movement, with the adoption of a classification system for sustainable activities, which defines a common language for investors. Likewise, States that place the green transition at the heart of their various recovery plans promote responsible investments over the long term.
Finally, individual citizens can exert an increasingly strong pressure on these investors: today’s society values an ethical vision of finance and the economy to serve the community. Banks that finance the economy have a major role to play in major transitions.
Ultimately, the non-financial and financial criteria should come together, the former becoming a full-fledged measure of company performance.