Dilemmas in Responsible Investment by Celine Louche and Steve Lydenberg – the second book in the Greenleaf Responsible Investment series – is, at its heart, a book about the challenges faced by individuals seeking to invest in line with their ethical values. The book shines a very clear light on how individual’s ethical values and interests are mediated through (and, far too often, subordinated to) a whole series of factors, including: the time and cost implications of researching corporate performance on social and environmental issues; the preference of advisers and investment managers that clients – in particular, those with limited amounts of money – invest in ‘standard’ rather than ‘bespoke’ products’; the practical challenges and difficulties in changing the manner in which a company operates; the huge diversity of views among individuals concerned about social or environmental issues; the (at least perceived) tension between social and environmental performance and investment performance.
Dilemmas in Responsible Investment provides five essential truths about responsible investment in practice:
1. Investors concerned about environmental, social and governance issues have many different and frequently competing values. Their expectations of what should be done, therefore, differ enormously. This presents a real problem for advisers and investment managers who can find themselves in the position of seeking to ‘reconcile the irreconcilable’.
2. Responsible investment is not just about facts and objective evidence. There is frequently a tension between the desire of investment professionals for what they see as ‘rational’ and ‘objective’ decisions and the complex emotional responses and expectations of individuals.
3. Information and information asymmetries characterise the whole responsible investment field. The problems include: the biases and limitations in the information provided by companies to investors and other stakeholders, the differences between the information available to large investors and the information available to individual investors and their advisers, the lack of transparency around the relationships between advisers and investment managers, the limitations in the technical knowledge of individual investors that mean they have to rely on their advisers.
4. Many discussions about responsible investment are, in reality, structured to best suit the interests of the actors in question. For example, while a client may not wish to invest in a particular company, the investment company may offer engagement as a means of holding on to the client while not incurring the additional costs that constructing a bespoke portfolio for the client may entail.
5. There are huge structural inertia in the investment industry, which mean that, for most investors, commitments to ‘responsible investment’ are unlikely to significantly change how they carry out their day to day activities. Investment performance remaining sacrosanct as the primary measure of the quality of service provided to clients is of particular importance; as is that none of the actors in the investment chain want to incur the significant transaction costs (research, dialogue with companies, constructing bespoke portfolios) that fully meeting client’s ethical expectations would entail.
Through its focus on responsible investment in practice, Dilemmas in Responsible Investment is, I believe, one of the most profound and important books that has been written on the subject of responsible investment.
Senior Research Fellow at the University of Leeds
Rory has recently released Valuing Corporate Responsibility: How Do Investors Really Use Corporate Responsibility Information? which delves further into ‘Responsible Investment’.