Ahead of its launch of a proposed ‘Long-Term Investment Institute’, Martin Currie, the Edinburgh-based international equities house, has produced an interesting paper describing the strong link between long-termism and sustainability. There are differences in the two concepts, too.
The paper, ‘How Asset Owners Can Drive Sustainability’, written by David Sheasby, Martin Currie’s head of stewardship and ESG, looks at why asset owners must drive forward ESG and sustainability factors if they are to generate long-term returns.
The study of ESG is becoming more sophisticated for several reasons. People are now starting to look at an investor’s responsibilities in an investee company’s supply chain, for instance. ‘Modern Slavery’ guidelines, where Australia and New Zealand are world leaders, provide an example of this.
And for a big fiduciary investor to reap the benefits of ESG policies, it has to have a long-term mindset – you can’t be having a high-turnover tactical-type manager, except perhaps, around the edges of a portfolio, but certainly not at its core. But, Sheasby also says: “It is important to note that long-termism and sustainability are two distinct concepts. Not all investment that is long- term is necessarily sustainable.”
Kimon Kouryialas, Martin Currie’s Melbourne-based co-head of global distribution, said the firm had been increasingly looking to develop genuine partnerships with pension funds and other big investors, so that they could look at horizons of up to 20 years. The proposed ‘Long-Term Investment Institute’ would provide a research hub and communications forum for like-minded investors, he said.
Sheasby starts his paper with a quote from Warren Buffett, the famous investor: “Someone’s sitting in the shade today because someone planted a tree a long time ago.” In the paper Sheasby says:
- Long-termism is an important contributor to value creation
- Environmental, social and governance factors are sources of long-term, as well as shorter-term, risk and opportunity
- Stewardship adds value by protecting and improving both investment returns and company sustainability practices
- Sustainability goes hand in hand with long-termism, but is distinct from it, and
- Asset owners can drive sustainability and ESG forward, and it is their responsibility to do so.
The paper says: “With often very long-term goals and in some cases very substantial funds under their control, asset owners are in a prime position to drive sustainability, ESG and long-term value creation. By clearly understanding their own mission and setting out a set of clear investment beliefs there is the opportunity to identify asset managers who are aligned and able to deliver on their desired outcomes. The role of stewardship and reporting to the asset owners is key and offers the opportunity for an asset manager to demonstrate long-term value creation and help the asset owners deliver the outcomes required.
“The importance of sustainability in aligning the relationship between the owners and users of capital is best encapsulated by the statement from the International Corporate Governance Network: ‘Sustainability implies that the company must manage effectively the governance, social and environmental aspects of its activities as well as its financial operations.
“In doing so, companies should aspire to meet the cost of capital invested and generate a return over and above such capital. This is achievable sustainably only if the focus on economic returns and strategic planning includes the effective management of company relationships with stakeholders such as employees, suppliers, customers, local communities and the environment as a whole.”
Note: Martin Currie is a sponsor of Investor Strategy News.