By Cecile Feront & Stephanie Bertels
With the recent flood of pledges by investors to “turn up the heat” on climate action, one might think that the investment industry was in the midst of a profound shift. If only that were the case.
Officially, the majority of the world’s institutional investors, with assets under management worth more than US$89 trillion, subscribe to the Principles for Responsible Investment. In doing so, these companies have agreed to integrate environmental, social and governance factors into their investment processes.
Yet, so far, investors’ commitment to responsible investment appears to have exerted little influence on corporate behaviour and short-term investment trends. The funding of the fossil fuel industry continues to rise. Investment giants like BlackRock and Vanguard keep on voting against key climate resolutions. Major shareholders ignore the growth of social inequalities.
Even the PRI (the organisation that governs the Principles for Responsible Investment) acknowledges that action lags behind awareness. Companies are often not accounting for risks to sustainability. Nor do they account for how they are addressing environmental, social and governance issues relating to climate change.
Civil society organisations, academics and journalists have begun questioning whether responsible investment can bring about the level and pace of change required to enable an inclusive climate change transition. They are also highlighting the high risk of greenwashing – when companies set ambitious climate goals but have no plans for how to get there.
To better understand whether the financial industry is really shifting, we looked to South Africa, a country with a leading regulatory framework for responsible investment. Since 2011, all pension funds have been required to take a responsible investment approach as part of their fiduciary duty. A Code for Responsible Investment in South Africa) was released and in 2013 it supplied practice recommendations for institutional investors and their service providers. As a result, most South African institutional investors publicly pledged their support for responsible investment. Read more…
