Climate change, plastic pollution, Covid-19, mass extinction, child labour, income inequality: it’s a grim list attracting increasingly universal attention.
It is therefore unsurprising that there has been an exponential growth in interest in environmental, social and governance (ESG) issues in the investment community in recent years. What was once seen as a niche market for a small group of investors prepared to sacrifice potential returns in the interests of “doing the right thing” has now become mainstream.
Taken collectively these growing trends have been termed ‘stakeholder capitalism’: a recognition that long-term value is most effectively created by companies by serving the interests of all stakeholders.
Until now, however, one of the challenges has been the effective measurement of corporate activity in a way that allows for comparison between enterprises and over time. That is why a report published on the 22nd September by the World Economic Forum is to be welcomed. “Measuring Stakeholder Capitalism: Towards Common Metrics and Consistent Reporting of Sustainable Value Creation” defines a core set of so-called ‘Stakeholder Capitalism Metrics’ designed to replicate generally accepted international accounting standards.
Why does this matter? The simple answer lies in the old saying, what gets measured gets managed.
Until now it has been difficult for fund managers to hold companies to account because there has been a lack of consistency in reporting and, in many cases, an ability for businesses to hide behind this when it comes to disclosing any information at all. This in turn has made it easier for fund managers to turn a blind eye, or disregard ESG considerations, when making investment decisions.
St. James’s Place has been driving change in this area. Under the banner of “financial well-being in a world worth living in”, they have engaged with all their fund managers on ESG issues, and built ESG considerations into the their ‘select, monitor, change’ Investment Management Approach for their funds. At the same time, they have worked to get their own house in order, with the company now enjoying an A+ rating in its annual UN Principles of Responsible Investment assessment.
It is to be hoped that a more universally agreed set of metrics by which to gauge the performance of the companies funds invest in will help wealth managers like St. James’s Place to direct capital into businesses that are good for all stakeholders. In the long-term this should ensure the success of those enterprises and reward the investors who back them.
The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.