Institutional investors must focus more on establishing board-level oversight of sustainability policies, altering investment strategies and adopting investment criteria based on sustainability in order to succeed in coming years, according to new investor guidelines released by investor coalition and lobby group Ceres.
A series of 10 ‘action steps for major investors’ outlined by Ceres in its new investment blueprint would also require sustainable investment expertise in manager and consultant procurement, use sustainability policies to help evaluate manager performance, identify the sustainability issues more important to the fund and evaluate asset allocation for material sustainability risks.
The document also calls for the establishment of proxy voting and corporate engagement guidelines in line with sustainability policies, the creation of a statement of investment beliefs based on sustainability and a commitment to ‘support policies and market initiatives that promote a sustainable global economy.’
The blueprint, released at the International Corporate Governance Network annual meeting in New York on June 26, was developed in co-operation with a group of major investors, including the New York, California and Florida public pension funds, State Street Global Advisors, and others. Ceres directs a network of 100 institutional investors with collective assets it says totals more than $11 tn.
‘Establishing the activities outlined in the blueprint positions institutional investors for global economic growth and long-term value creation,’ says Jack Ehnes, CEO of CalSTRS, in a press statement. ‘Each of the strategies offered affords decision makers the opportunity to take appropriate action on all material investment considerations, including ESG issues. CalSTRS has successfully integrated sustainable business practices into our investment policy.’
The dramatic changes to policies and procedures among major investors are needed as climate change, population pressure, tighter water supplies, scarcity of resources, rising energy demand and supply chain failures will represent increasing concerns in coming years, Ceres says.
‘The financial risks of climate change and other sustainability threats will have profound effects on investment returns in the years to come, yet the traditional methods of financial analysis used by most large investors ignore these factors,’ adds Ceres president Mindy Lubber in the release.
‘The blueprint provides a clear path for integrating sustainability challenges into investment strategies, and shifting from short-term thinking about earnings and profits to longer-term, risk-adjusted returns mindful of the present as well as the future.’
