September 22, 2009 / 4:00 PM / 10 years ago

Sustainable investment seen gaining momentum

LONDON (Reuters) - Investing in socially and environmentally responsible companies or sectors which tackle climate change or resource scarcity is gaining momentum as it offers a unique diversifying opportunity, fund manager RCM says. Sustainability investment is an approach designed to pick companies which manage environmental, social and governance (ESG) risks.

It also involves firms which focus on environmental and social trends, such as demographics or climate change — a growing investment theme for government-owned institutions such as Norway’s $400-billion-plus sovereign wealth fund.

Illustrating the level of interest in sustainability investment, nearly 600 asset owners, investment managers and professional service partners representing a total of $18 billion have signed up to the Principles for Responsible Investment, a United Nations-led framework.

Contrary to criticism that sustainable investment restricts the investment universe and underperforms a broader market, RCM — an equity managing arm of Allianz Global Investors — says that historical performance data showed no relative loss and in certain times offer extra returns.

“It’s not about XYZ companies are bad but it’s more about what may be good. If a company meets certain criteria, potentially that may bring better performance. Companies acting in a responsible way will be perhaps more sustainable in the future,” Barbara Evans, sustainability research analyst at RCM, told a briefing on Tuesday.

The Dow Jones Sustainability World Index has risen 29 percent since the start of the year, compared with 28 percent in the benchmark MSCI world equity index.

Dutch firm Philips Electronics, which makes energy-efficient light bulbs and medical equipment, is one of the firms RCM’s sustainability investment fund likes as it satisfies demographic and climate change themes.

SOVEREIGN INTEREST

RCM’s 1.5 billion pound sustainability investment fund has France’s ERAFP civil servants pension scheme among its clients.

The driver of sustainable investment among government-owned institutions is Norway’s sovereign wealth fund which follows ethical guidelines set by the government and is seeking to play a “green activist” role.

They rule out holding investments in certain firms, for instance those that produce nuclear arms or cluster munitions, or that damage the environment or abuse human rights.

The world’s second largest wealth fund said in July it had expelled Israel’s Elbit Systems for supplying surveillance equipment for the West Bank separation barrier.

“It certainly makes people think. Norway is absolutely radical. They think (sustainable investment) will be outperforming... in the 50-year time frame,” Evans said.

One of the priorities for Norway’s fund is dealing with water management given the limited availability of water resources, a key input or production factor for companies in the fund’s current portfolio.

Editing by Stephen Nisbet

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