Coming into View: Environmental, Social and Governance Sustainability for Institutional Investors

By N.A.J. Taylor on 1st June 2009 — 1 min read

Investment markets cause myopia; the institutional structure of the investment markets is such that many participants focus dangerously on harvesting short-term gains and managing immediate risks, whilst being guided by a narrow set of financial indicators.  

That’s precisely what most institutional investors are notsupposed to be doing.  Asset owners, such as superannuation funds, are established to marshal the combined retirement savings of a large number of people with a broad range of needs.  For example, Statewide Superannuation Trust invests two billion dollars on behalf of 170,000 South Australians who commonly have differing levels of income, risk appetites, time horizons (e.g. the amount of time to retirement), and so on.  A similar set of demands drives the actions of every superannuation fund.  But one thing is certain: of Australia’s 11 million or so superannuants, 43 percent will not draw down their retirement savings for more than 30 years[1]– they are long-term investors, with long-term interests.  

Thankfully, this disconnect is all about to change.  Sadly, it has taken the shock of a carbon-constrained world to alert the investment industry to a set of considerations that have evaded its view for some time: environmental, social and governance sustainability.[2]  In this chapter we discuss how an ‘interrelated web’ of risks and opportunities arising from climate change is compelling the investment industry to consider a broader range of factors over a longer timeframe than has traditionally been the case – which, incidentally, is precisely what they should be doing.  

[1]           APRA (2008), ‘Annual Superannuation Bulletin’, Australian Prudential Regulation Authority Statistics, June 2007.

[2]           Note that by investing according to economic rationality, ‘sustainable investing’ markedly differs from the values-based approach of either ‘ethical’ or ‘negatively-screened socially responsible’ investing.  

Download (PDF, 383KB)

N.A.J. Taylor (with Frances Magill), ‘Coming into view: Environmental, social and governance sustainability for institutional investors’, in John O’Brien (ed.), Opportunities Beyond Carbon: Looking Forward to a Sustainable World, Melbourne University Press, Australia: Melbourne, July 2009, pp.190-204[PDF

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