SRI gloom… how do we move on from here?

 

My key takeaway points from the recently published Extel/UKSIF 2012 SRI State of the Nation study (Download the report from this link)

Is SRI another victim of the general markets gloom ...or the realization of the very slow progress on sustainability in equity investments?

The conclusions of the comprehensive Extel/UKSIF 2012 SRI State of the Nation study, published on Tuesday 10th July 2012, lead us to believe that there is a prevalent feeling of gloom among the SRI community. This could be best described as having hit a wall, the general acknowledgement that with the current framework and tools SRI investing and sustainability in general cannot progress any further. Investors, Asset Owners, Corporate and Governments recognize that they need to move on together in order to make sustainability mainstream. According to this study, the key challenges ahead are:

1. Lack of leadership to make CSR & ESG investing mainstream. Investors, Corporates and Governments are waiting to see others be the first to take the next steps. Honestly, who of these actors is really taking Climate change seriously?

SRI Investing at a crossroads

2. ESG data overload. At the same time, not all relevant ESG data is collected and disclosed appropriately. Non-standardized data still poses a technology challenge.

3. Well-known intrinsic difficulty in integrating non-financial data into investment decision models. Need to create a working framework were “low-frequency & high-impact” risks and long term financial metrics are effectively integrated.

4. Lack of cooperation among sustainability stakeholders. Corporates find understanding the key drivers of SRI investments difficult as investors feedback is scarce to say the least. Also engaging with SRI investors in order to improve their CSR policies is far from becoming a general practice. Asset Managers feel there is a lack of real commitment on the part of Asset Owners to ESG investing, as opposed to the widely perceived box-ticking exercise. Government initiatives and the UNPRI are not implementing the necessary steps to ensure ESG integration quickly enough.

5. Sadly, short-term thinking is still prevalent among Corporates, Investors and democratic governments. This in itself clashes with the whole SRI investing ethos which requires long-term thought and investment horizon.

So, how do we move on from here?