Survival of the fittest

01/12/2009

The idea of sustainable investing has become increasingly popular in recent years as more investors understand the need to invest for the long-term. Better Investor spoke to Rajinder Singh, Portfolio Manager at BT Investment Management (BTIM), about what it means to invest sustainably and why this type of investing is attracting so much attention.

BI: What is sustainable investing?

RJ: Put simply, sustainable investing means investing for the long-term rather than just the short-term. It involves three key investment metrics. The first is environmental, which refers to the way a company and its activities impact on the environment. The second is social, which focuses on the way a company treats its workforce and how it deals with community and other stakeholder expectations. The third metric is corporate governance, which really looks at how a company is run and whether or not it has the right policies in place to survive long-term.

BI: What was behind the push for this type of investing?

RJ: I think there were a lot of things really. Some were market-driven while others were more environmental and social. If you look at what happened to the likes of Enron and WorldCom, it’s fair to say that there were some serious corporate governance failures in the way those companies were run. Environmental and social issues are probably less explicit. The case of James Hardie, for example, was a social failing because the company didn’t meet the expectations of the community or its employees. Of course, as analysts we should be looking at these issues anyway, only now we’ve actually put a framework around it which enables us to make decisions about investing in particular companies.

BI: Is sustainable investing the same as ethical investing?

RJ: No. Ethical investing and sustainable investing are not the same. Ethical investing involves investing in companies that demonstrate certain moral or ethical standards, whereas sustainable investing involves looking not only at what a company does, but how it actually does it. For example, an ethical investor might not invest in a company that produces alcohol because it views alcohol as a social evil. A sustainable investor, however, might look at the same company and ask how it sources its water, what it’s doing about binge drinking, and whether or not it has appropriate risk controls in place before they decide to invest.

BI: When did the idea of sustainable investing first come about?

RJ: Sustainable investing popped up somewhere in the 1990s. BT and Westpac were actually among the first to get involved. We’ve had a long partnership with a group at Melbourne University called Monash Sustainability Enterprises (MSE), and together we formed one of the first sustainable funds in Australia.

BI: What are some of the trends we’re seeing in sustainable investing?

RJ: I think the big thing is that we’re beginning to see a lot more awareness of this type of investing. When Al Gore started making noises about climate change and sustainability, people started to ask themselves what role they can play and how they can make a difference in the way they invest. We’re also seeing a number of governments adopt sustainability initiatives, which has obviously contributed to that awareness.

BI: What has the global financial crisis taught you about investing?

RJ: One of the things the global financial crisis has taught me is that when there’s an issue building, we don’t always know when it’s going to come to a head. A lot of people were concerned about the high level of debt in the market, but no one could have guessed the timing of the fallout. I think what it really comes down to is being nimble and being able to adjust when the market does change.

Who is Rajinder Singh?

Rajinder Singh joined BT Financial Group in December 2000 and moved to BT Investment Management when the company was floated in late 2007. He is currently the Portfolio Manager responsible for the design and implementation of BTIM’s sustainable portfolio management strategies. Rajinder is also actively involved with the implementation of the United Nations’ Principles for Responsible Investment within BTIM.

United Nations’ Principles for Responsible Investment
In early 2005, the United Nations invited a group of the world’s largest institutional investors to join a process to develop the Principles for Responsible Investment (PRI). Individuals representing 20 institutional investors from 12 countries agreed to participate in the Investor Group. The Group was supported by a 70-person multi-stakeholder group of experts from the investment industry, inter-governmental and governmental organisations, civil society and academia. The process, conducted between April 2005 and January 2006 involved a total of five days of face-to-face deliberations by the investors and four days by the experts. The Principles for Responsible Investment emerged as a result of these meetings. The PRI reflects the core values of the group of large investors whose investment horizon is generally long-term, and whose portfolios are often highly diversified. BT Financial Group signed the UN PRI agreement in January 2007.

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