“It may have started with a bat in a cave, but human activity set it loose.” – David Quammen
The Credit Suisse Global Investment Returns Yearbook, published by the Credit Suisse Research Institute, in collaboration with London Business School and Cambridge University professors, is the authoritative guide to historical long-run financial returns. This article was going to be a summary of the third chapter titled, ESG (environmental, social or governance) Investing.
Well the Covid-19 bomb blew that idea out of the water, along with going out for a cup of coffee or a stroll along the Sea Point Promenade. So here is what I wrote instead as it became crystal clear that Covid, bats and investing are closely related.
If the realisation of the impact of climate breakdown on our sustainable future on earth can be likened to a flickering torch beam slowly getting closer, Covid-19 is the equivalent of beaming a halogen spotlight on those activities that impact on planetary health. Several theories propose that it is our destruction of the environment that created the conditions for this pandemic, a hidden cost of unbridled human economic development. David Quammen, author of Spillover: Animal Infections and the Next Pandemic, recently wrote an article in the New York Times titled, “It may have started with a bat in a cave, but human activity set it loose.”
Caught in this blinding Covid-19 spotlight is the philanthropic community, together with our investment advisers, stockbrokers and banks. In pursuit of maximising returns most of us invest our endowments in successful mining, manufacturing and construction companies. Companies that often drive environmental and social damage. We invest significant time and effort in giving away four or five percent of our endowments but turn a blind eye to the collateral damage of our investments, the harm-causing activities, some of which we expect our grantees to address. For example, we fund health programmes and invest in British American Tobacco; we fund early childhood development and foetal alcohol syndrome research but are invested in brewing companies; we fund environmental programmes and invest in high carbon emitting mining companies; we fund social justice and invest in companies that exploit the poorest and most marginalised.
We subject our grantees to rigorous selection processes and onerous monitoring and evaluation, yet we may not have considered applying the same rigour to the funds or companies we invest in to account for their environmental, and social impacts. By not aligning our most powerful weapon, our assets, with our missions, we may unknowingly be undermining the causes we so passionately advocate for and confining our efforts within a damaged system rather than tackling the necessary changes to the system itself. It seems we may have lost sight of the invisible connections between the wellbeing of humans, other life on earth and ecosystems.
In fairness, pre Covid-19, the subject of ESG (environmental, social or governance) investing, also known as responsible investing, was a topic gaining traction. Simply put, how do we want our assets to be a force for good, or at least do no harm? Approaches range from removing (divesting) from the investment portfolio and avoiding (exclusions) adding to the investment portfolio, corporates or sectors that fail ethical criteria – though to shareholder activism to influence or force change where there is room to improve.
Now we sit, caught in the spotlight of Covid-19, watching our endowment values plummet at the same pace infections rise. We are grappling with what we can do in this time of crisis and simultaneously wonder what the financial impact is going to be on our ability to support our grantees in future. Do we continue to chase maximising returns or do we join the rising groundswell of opinion that we need a new economic order, one that acknowledges that if we carry on at the current rate of pillage and exploitation of the earth, and one another, Covid-19 is going to look like just a warning shot across our bows.
This is where Chapter 3 of the Credit Suisse Global investment Returns Yearbook comes into the spotlight. It asks and answers the question: “Does virtue have its own rewards in terms of higher returns and lower risk? Or do ESG investors need to sacrifice return and diversification opportunities as the price for their principles?”
I will skip straight to their conclusions. “Investment strategies based on exclusions (avoiding corporates or sectors that fail ethical criteria) are on average likely to face a small return and diversification sacrifice. The magnitude of this is unlikely to be material.” Their research also showed that “deep engagement with investee companies offers financial as well as non-financial rewards” and “when an activist cooperates with other investors this enhances the success rate for such interventions. “
What the Credit Suisse data analysis is telling us, is that investing responsibly is a win-win scenario, it’s not going to impact your bottom line and its good for the planet. And if we act together, we will have greater success.
As asset owners we have significant power and leverage to shift systems and catalyse change. Covid-19 is an immense opportunity for philanthropy to lead the charge and use our collective assets to champion responsible investment. What that halogen spotlight is highlighting is responsible investing is no longer a choice for philanthropy, it is a strategic no-brainer.
Lindy Rodwell van Hasselt – Relationship Director – The Lewis Foundation
Cell: 082 493 1991 – Email: firstname.lastname@example.org