Better Returns in a Better World

Responsible investment: overcoming the barriers and seeing the returns

This paper summarizes a two-year research engagement project with the investment community on their role in contributing to poverty reduction and sustainable development.

Oxfam undertook this research because we recognize the enormous influence investors have on poverty and development both as capital allocators – where and in what they invest - and as major influencers of companies and public policy. Investors have in the past institutionalized some of Oxfam’s calls and contributed to improving companies’ performance on access to medicines, labor standards and climate change. They did so as they were concerned about the impact of those companies’ actions (or inactions) on the companies’ financial bottom line over the long term. At the same time, we recognize that financial market pressures for ever higher profits over short timeframes remains a barrier for companies adequately to manage negative social and environmental impacts.

The role of investors in tackling social development issues is becoming increasingly important as the centre of gravity of the investment industry is moving slowly but inexorably towards emerging markets, including the growing interest within the investment community in natural resources ,such as farmland, on which the livelihoods of millions of poor people depend.

Oxfam has engaged with over 80 investors across Europe and United States to analyse jointly the role of institutional investors through the lenses of seven poverty-related topics.

Despite the increasing consensus amongst investors of the importance of paying attention to social, environmental and governance issues:

  • the social aspect (particularly poverty and development issues) has lagged behind.
  • most contributions have emerged in response to NGO campaigns, thus, there is a need for a more structured and holistic approach to development and poverty issues

The report identifies a series of obstacles that limit the extent to which development and poverty issues are considered as an integral part of investors’ analysis, decisions and engagement. Barriers include structural problems – lack of demand from asset owners, short-termism and a lack of transparency in the investment industry; and a set of more technical aspects such as the lack of agreed norms or international standards on companies’ performance around development and poverty issues.

Oxfam concludes that investors can and should do much more even in the prevailing context. Yet, there are clear limits to the extent investors can and will integrate development and poverty issues in their investment decisions in the absence of clear regulatory frameworks or incentives in relation to which governments have a critical role to play.

Recommendations for institutional investors:

  • That all institutional investors (asset owners, insurance companies, asset manager, etc.) develop, implement and report on their responsible investment strategies, with a particular focus on how they will address poverty and development issues within their overall approaches to responsible investment.
  • That asset owners explicitly demand and reward investment managers that take particularly proactive approaches to responsible investment.

Recommendations for governments:

  • To introduce regulations that require pension funds and other asset owners not only to have a policy on responsible investment, but also to publish details on how they will implement their policy, and to report regularly on the social, environmental and financial outcomes that result from the implementation of their policy.
  • That governments make responsible investment an integral part of how the financial assets they control (e.g. state pension funds, sovereign wealth funds) are run.