While a number of investors are increasingly interested in responsible investing (RI), with a particular emphasis on environmental, social, and governance (ESG) integration, many remain concerned about whether responsible investing will be beneficial to their investment portfolios.
When it comes to launching a responsible investing initiative, there are a number of issues for investors to carefully consider, including local regulatory guidelines, cost, and the financial incentives (or disincentives) for doing so.
This paper offers an analysis of the issues that should be reviewed prior to engaging in a responsible investment initiative, including:
- What are the drivers of responsible investing?
- How do different regulatory regimes view responsible investment initiatives?
- Responsible investment options: What is meant by the following terms?
- Socially responsible investing (SRI)
- Environmental, social, and governance (ESG) integration
- Impact investing
- Mission-related investing (MRI)
- How can different types of responsible investing affect investment returns?
- Are there additional hurdles for responsible investing initiatives?
We conclude that responsible investing is indeed a growing trend, driven by both top-down and bottom-up demand. We also identify the four types of responsible investing, as well as performance data that supports the use of carefully selected RI strategies. In fact, while investors that utilize negative screening techniques need to consider both tracking error and shareholder engagement risk, the available data suggests that value-neutral strategies, like ESG integration, should have a neutral to slightly positive impact on performance.
Finally, while regulatory requirements should be a significant concern for investors, the guiding principle of most jurisdictions seems to be that RI and ESG investing are not prohibited as long as investors always consider financial prudence first. There are, however, other factors to consider besides regulatory prudence, including lingering issues with data, “greenwashing,” and portfolio construction. Nevertheless, Aon does believe that investors can mitigate these issues, prudently implement RI strategies, and achieve desired sustainability outcomes without forfeiting their fiduciary duties.
For more information, download the full whitepaper above.
Aon plc (NYSE:AON) is a leading global professional services firm providing a broad range of risk, retirement and health solutions. Our 50,000 colleagues in 120 countries empower results for clients by using proprietary data and analytics to deliver insights that reduce volatility and improve performance.
© 2019 Aon plc. All rights reserved.
The information contained herein and the statements expressed are of a general nature and are not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information and use sources we consider reliable, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.
This document has been produced by Aon’s Global Investment Management (GIM) Research Team, a division of Aon plc and is appropriate solely for institutional investors. Nothing in this document should be treated as an authoritative statement of the law on any particular aspect or in any specific case. It should not be taken as financial advice and action should not be taken as a result of this document alone. Consultants will be pleased to answer questions on its contents but cannot give individual financial advice. Individuals are recommended to seek independent financial advice in respect of their own personal circumstances. The information contained herein is given as of the date hereof and does not purport to give information as of any other date. The delivery at any time shall not, under any circumstances, create any implication that there has been a change in the information set forth herein since the date hereof or any obligation to update or provide amendments hereto. The information contained herein is derived from proprietary and non-proprietary sources deemed by Aon to be reliable and are not necessarily all inclusive. Aon does not guarantee the accuracy or completeness of this information and cannot be held accountable for inaccurate data provided by third parties. Reliance upon information in this material is at the sole discretion of the reader.
This document does not constitute an offer of securities or solicitation of any kind and may not be treated as such, i) in any jurisdiction where such an offer or solicitation is against the law; ii) to anyone to whom it is unlawful to make such an offer or solicitation; or iii) if the person making the offer or solicitation is not qualified to do so. If you are unsure as to whether the investment products and services described within this document are suitable for you, we strongly recommend that you seek professional advice from a financial adviser registered in the jurisdiction in which you reside. We have not considered the suitability and/or appropriateness of any investment you may wish to make with us. It is your responsibility to be aware of and to observe all applicable laws and regulations of any relevant jurisdiction, including the one in which you reside.
Aon Hewitt Limited is authorized and regulated by the Financial Conduct Authority. Registered in England & Wales No. 4396810. When distributed in the US, Aon Hewitt Investment Consulting, Inc. (“AHIC”) is a registered investment adviser with the Securities and Exchange Commission (“SEC”). AHIC is a wholly owned, indirect subsidiary of Aon plc. In Canada, Aon Hewitt Inc. and Aon Hewitt Investment Management Inc. (“AHIM”) are indirect subsidiaries of Aon plc, a public company trading on the NYSE. Investment advice to Canadian investors is provided through AHIM, a portfolio manager, investment fund manager and exempt market dealer registered under applicable Canadian securities laws. Regional distribution and contact information is provided below. Contact your local Aon representative for contact information relevant to your local country if not included below.
Aon plc/Aon Hewitt Limited
The Aon Center
The Leadenhall Building
122 Leadenhall Street
Aon Hewitt Investment Consulting, Inc.
200 E. Randolph Street
Chicago, IL 60601
Aon Hewitt Inc./
Aon Hewitt Investment Management Inc.
225 King Street West, Suite 1600