The management education community often mentions finance as one of the most challenging disciplines to incorporate sustainability into teaching and research. However a significant amount of work is being done within the financial community in this respect that can be tapped into, and contributed to, by the academic community. More mainstream capital markets, including major institutional investors, now also evaluate companies’ performance on environmental, social, and governance (ESG) issues. Several of these projects are being initiated and coordinated by the UN Global Compact.
This post provides a brief overview of the different projects and resources available on the topic of Finance and Sustainability by the UN Global Compact and outlines a range of ways that academic institutions can get involved in these projects.
The UN Global Compact supports a number of platforms that engage investors in understanding and incorporating environmental, social, and governance (ESG) issues into their investment decisions. The UN-supported Principles for Responsible Investment (PRI) is an international network of investors working together to put the Six Principles of responsible investment into practice. Their goal is to understand the implications of sustainability for investors and support signatories to incorporate these issues into their investment decision-making and ownership practices. The PRI Academic Research work stream aims to engage PRI signatories and responsible investment practitioners with academic research.
On their website, PRI also has a significant number of resources specifically focused around the implementation of responsible investment by different actors across the field, including hedge funds, commodities, private equity, fixed income, etc.. A new report, Fiduciary Duty in the 21st Century, is also now available and explores the debate around whether fiduciary duty is a legitimate barrier to investors integrating ESG issues into their investment processes.
PRI works alongside a number of other related initiatives including the UNEP Finance Initiative, the Equator Principles (environmental and social risk in projects) and the Principles for Sustainable Insurance.
PRI and PRME are sister initiatives of the UN Global Compact. Currently the secretariats of both initiatives are developing a common work stream to better connect both networks and to identify joint projects. Updates will be forthcoming.
There are two initiatives focused on encouraging sustainable investment and evaluating potential financial performance through an ESG lens via Stock Exchanges. This includes:
- The Sustainable Stock Exchange Initiative (SSE) provides a platform for dialogue between the UN, stock exchanges, investors, companies, and regulators focused on creating more sustainable capital markets.
- The Global Compact 100 is a stock index composed of a representative group of UN Global Compact companies, selected based on implementation of the Ten Principles and evidence of executive leadership commitment and consistent base line profitability. It does not look at sustainability performance in isolation of basic financial health but rather marries the two. The index showed a total investment return of 21.8 by the end of its first year surpassing the S&P global mid and large-cap benchmark over this period.
Creating Long Term Value
The report Short-Termism in Financial Markets explores short-termism in investment markets, a major obstacle to companies embedding sustainability in their strategic planning and capital investment decisions. Coping, Shifting, Changing: Strategies for Managing the Impacts of Investor Short-Termism on Corporate Sustainability also provides further guidance. Another resource, Tool for Communicating the Business Value of Sustainability, offers companies a simple and direct approach to assess and communicate the financial impact of their sustainability strategies.
For an overview of lessons learnt and recommended next steps for enhancing further integration of ESG and communication between companies and investors, the report Enhancing company-investor communication provides further guidance.
Ways for the academic community to get involved
- Attend/participate in events relating to these initiatives. For example PRI in Person, the global conference on responsible investment, recently took place in London, UK. It included a meeting specifically aimed at academics. These provide opportunities to network and make connections for possible projects and partnerships moving forward.
- Use the tools and resources made available for investors in your curriculum
- Propose/create projects around the implementation of these tools: Approach signatory companies or other companies in your area to propose project work or events specifically around these tools and their implementation.
- Calls for papers and possible research topics. PRI provides a range of opportunities through its website that are open to academics. You can also sign up to receive their newsletter, RI Quarterly. Some current topics of interest include
- How do organisations practice ESG integration?
- How can the bar be raised for the investment community as a whole?
- What approach works better for engagement?
- How is high performance achieved?
- How do you measure and make the link between investment and its impact?
For a full list of possible research topics click here.
- The oikos PhD Fellowship on “Finance and Sustainability” at the University of Zurich in Switzerland is looking for applicants (deadline November 10). The Fellowship supports outstanding international PhD students writing their theses on sustainability in economics or management.
- Stay tuned for the announcement of a joint PRI-PRME workstream on responsible investment and finance.