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Interaction between governments, companies and individuals in post-Covid-19 world will shape the future of responsible investing

Interaction between governments, companies and individuals in post-Covid-19 world will shape the future of responsible investing 1

By Adrie Heinsbroek, Principle Responsible Investment at NN Investment Partners 

  • Responsible investors will need to navigate new ‘unknown areas’ in a multi-stakeholder, post-Covid-19 world
  • These include the scope of government intervention; whether companies will put shareholder interests above those of other stakeholders; and to what extent individuals will structurally change their behaviour
  • NN IP believes that although the short-term focus is on recovery from the pandemic, the major long-term challenges posed by broader societal and environmental issues remain

Covid-19 has disrupted every aspect of human life. This global threat has spurred us to reconsider priorities and heightened the importance of social justice and preservation of the planet. But if it is to be the catalyst that drives change towards a more sustainable world, what role will governments, companies and individuals be required to play? NN IP identifies new ‘unknowns’ that responsible investors will increasingly need to take into account in their decision-making.

Fundamental changes are already underway, as seen in the unprecedented fiscal and financial packages from governments, issuance of social bonds to fund healthcare and employment preservation projects, and companies cancelling dividends and share buybacks to focus on the welfare of their employees and other stakeholders. A second theme to emerge has been the increased urgency to shift to a lower carbon world. It is already clear that corporate adaptability and responsibility helps build this resilience from an investment performance perspective.

Adrie Heinsbroek, Principle Responsible Investment at NN Investment Partners (NN IP), commented: “How a new ‘social contract’ between governments, companies and individuals might play out raises many questions. Investors and asset managers must assess how they should act upon these unknowns and be aware of how flexible they need to be if they are to adapt and tap into these corona-led trends.”

On 15 July 2020, Adrie Heinsbroek was joined by Joseph Stiglitz, Nobel Laureate and former World Bank chief economist, in a digital event to discuss how the actions and interactions of governments, companies and individuals will shape responsible investing in a post-Covid-19 world. This was the second event in NN IP’s UpsideDown series focusing on the world after corona.

Joseph Stiglitz commented: “Covid-19 has created many shocks but it has also accelerated changes that were already underway, especially around how we value economic and commercial success. GDP, for example, is too simplistic a measure and ultimately misleading. A broader set of indicators are needed to accurately capture the value inherent in wellbeing and sustainability in a new multi-stakeholder world.”

The transition towards a more balanced and inclusive economy is both dependent on and steers developments for three key groups. These are governments, companies and individuals and they form a triangle that is not just linked but also mutually dependent. Differences between countries, cultures, economic status and type of government will also affect the speed and direction of change.

How will governments lead?

A major question is how interventionist will governments be in the next decade? The fiscal and monetary support packages enacted to combat the economic fallout from the Covid-19 crisis are unprecedented. But will these packages and government policy be linked to the sustainability agenda, such as climate-change measures and carbon-reduction initiatives? Will governments take this opportunity to make financial support for companies conditional on tackling issues such as social inclusion? Will governments intervene more assertively, using punishment and incentives to steer corporate behaviour? They will also need to collaborate more internationally to meet climate targets and other sustainability goals.

To what extent are corporates able and willing to adopt a multi-stakeholder model?

NN IP believes that within the triangle, companies have the most opportunity to propel change towards a more sustainable economy. The unknowns at a corporate level are driven by the trade-off between a “shareholder first” approach and a multi-stakeholder model. The value of social behaviour – looking after customers and employees rather than investors (via dividends/share buybacks) is one of the most prominent developments to have come out of the pandemic. Will this more sustainable value creation at corporate level become a more permanent trend and continue to be rewarded in the post Covid-19 world? Will companies discard practices that put shareholder interests above those of other stakeholders? If a multi-stakeholder perspective becomes the driver for value creation, NN IP expects non-financial parameters to become a determining factor in assessing and predicting this. Such a change will also affect the role that environmental, social and governance (ESG) factors play in assessing financial value.

Will heightened awareness change individuals behaviour?

The Covid-19 crisis has increased people’s awareness of climate and social issues and the consequences of their behaviour. But will this heightened awareness translate into new patterns of behaviour? Will preferences strengthen for more sustainable products and services, such as organic foods? Will the trends developed during the lockdown, such as healthier lifestyles and less flying, continue? Finally, will sustainability become a privilege just for those who can afford it, posing a threat to a more inclusive global society?

Heinsbroek concludes: “There will be many challenges ahead and differences to address, but there are also elements that connects us. One aspect that has become clear is that effectively assessing value involves taking a broader perspective. Looking beyond financial factors. This will become an increasingly dominant trend in how we measure both economic and societal progress, and as investors we have the means to positively influence it.”

Investing

Risk Mitigation & The US Election

We need to talk about the election.

For the past four months, news cycles have been dominated by the COVID-19 pandemic. It is easy to forget that, for investors, the November US election was to be the defining issue of 2020. The winner will potentially impact the direction of travel of investments, regulation, corporate earnings and balance sheets for at least the next four years.

Sign up for the free webinar on the US Election & Risk Mitigation live on August 12th at 12pm EDT

Key takeaways:

  • Learn how to protect your assets against the risks posed by the US election
  • Understand how Chief Investment Officers are adapting to the United States’ political landscape to gain a competitive edge
  • Identify investment opportunities in this uncertain time

We will be joined by:

  • Shannon Saccocia, Chief Investment Officer, Boston Private
  • Stephanie Link, Chief Investment Strategist, Hightower Advisors

Sign up for the free webinar on the US Election & Risk Mitigation live on August 12th at 12pm EDT

If you can’t make it, sign up and I will send you the recordings.

 

Kind Regards,

Marek Razzouk

Research Lead, Financial Services

Investment Summit by Reuters Events

Phone: +44 7748655237

Email: [email protected]

Investment Summit by Reuters Events is part of Thomson Reuters.

Investment Summit by Reuters Events is the central hub for investment executives. Through in-depth industry analysis, targeted research, niche events and quality content, we provide the industry with a platform to network, discuss, learn and shape the future of investment.

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Investing

The impact of a recession on your pension

The impact of a recession on your pension 2

By James Turner, Director at Turner Little 

The stock market is beginning to show signs of life as measures introduced to help businesses amid the pandemic begin to take hold, but much is still uncertain. There’s no doubt that the pandemic has affected most people’s finances. From the Bank of England’s decision to reduce its rates, to the potential loss of earnings for people forced to remain at home, there is much to contend with.

“Naturally, at times of economic uncertainty such as these, people fear their retirement pots will be wiped out. For most people, their pension is one of the most valuable assets they hold,” says James Turner, Director at Company Formation Specialists, Turner Little.

So how could the continued pandemic and impending recession affect your pensions?

“If you have a defined contribution pension, your savings have probably been hit hard as a consequence, because pension schemes invest in the stock market, so big rises and falls can have an impact,” says James.

James Turner

James Turner

“It is important to remember that pension savings, as with any investment, is usually long-term. If you’re young, there’s still time for markets to recover before you take your pension, but if you’re close to retirement, there is the potential that your pot could have taken a bigger hit,” he adds.

Pensions are typically invested in stocks and shares, bonds, property and cash. If you’re concerned about its value, most schemes now have online platforms where you can see how your investments are performing.

“It’s important to treat your pension as an asset, and asset protection is all about planning. Effective planning ensures that no matter what happens, you will remain in control of your assets,” says James.

If you’re interested in finding our more about asset protection and would like to discuss your specific requirements, get in touch with us today. Our specialist team of experts will deal with matters pragmatically and sensitively, taking the time to meet with you and discuss your individual objectives in detail, in order to provide solutions that are uniquely tailored to your needs.

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Investing

The Business Case for Sustainable Wealth Creation: A Conscious Mindset Approach

The Business Case for Sustainable Wealth Creation: A Conscious Mindset Approach 3

By Mirjana Boznovska

The scale of the planetary crisis is so big that a fundamental shift is needed from business leaders and all stakeholders including investors, human resources as well as consumers. There is a new way of thinking emerging, one that is shaping the future of sustainable wealth creation with a focus on conscious mindset.

Humanity’s prosperity is linked to expanding our definition of wealth to include a respect for the environment and empathy for others. All of these come together and are the source of true innovation. Our future depends on learning to create wealth in sustainable ways.

Money and wealth are tools which help create opportunities. Opportunities for those who have it to do “good” in their environment, their community and globally. Serving society is the most inspiring and never-ending source for economic activities, creating value for humanity.

Sustainable Wealth

Sustainable wealth is future benefit that sustains future life. Sustainable wealth means consumption or the using up of benefits must equal additional investments that increase wealth, so wealth is maintained and sustained. When the spiritual dimension of wealth is interjected in the economic equation, physical wealth expands on two counts: a) there would be a lowered desire to consume materialism and b) the spirit of service would inevitably lead to increased wealth. Balancing ecological and economic consideration is an acceptable short-term goal of co-creating sustainable wealth, but in fact ecological restoration must be the long-term goal.

This would be possible only when unsuspected sources of clean energy are tapped and scientific research in ecological restoration is pursued. This is one way of looking at co-creating wealth that can help humanity pay back its ecological deficit. It’s about creating value without destroying value. The systems we create need to serve all individuals and the system itself.

Today our systems are increasingly feeding only the super-wealthy, and everything we understand about the human psyche is that we are creating a class of super selfish, super greedy people who take at the expense of individuals, society and our ecological systems. The depletion of social and environmental capital weakens our social systems. The world is interconnected, and different parameters are having an impact on our lives, our profession and on the worldwide economy.

The question that arises is how can we as an individual and as part of the global economy create sustainable wealth, balancing economic and ecological priorities?

The question is closely depending on how we start and manage a sustainable economy based on strong and long-term industry. The global economy remains market-centred, even though the evidence has been mounting that these markets are failing us and the planet. Tweaking this model isn’t good enough We need a new paradigm which will provide a new theory that fits our unfolding reality, a new environment-centred economics that can maximize not profit alone but the well-being of living things – it’s about conscious business which requires conscious leadership.

The Three P’s

Conscious business supports the idea of the three P’s: People, Profit, Planet. The authentic motives behind such choices are self-mastery, love, care and the desire to serve.

What is Business Sustainability? Business sustainability is often defined as managing the triple bottom line, a process by which businesses manage their financial, social and environment risks, obligations, and opportunities. We can extend this definition to capture more than just accounting for environmental and social impacts. Sustainable businesses are resilient, and they create economic value, healthy ecosystems, and strong communities. These businesses survive external crisis because they are intimately connected to healthy economic, social, and environmental systems. They require conscious leadership with a conscious culture and conscious service. A paradigm is a set of interconnected ideas that have a logical cohesion.

The Business Model for the 21st Century

In most discussions about the business case for sustainability, the emphasis has been on the bottom line. The value of sustainability has been analysed from every direction—revenues, profits, and share prices. However, sustainability is more than just about firm-level benefits. Businesses, business schools, and society recognize that the current course of production and consumption cannot be sustained within our natural resource limits.

Businesses develop the products and services consumed by individuals around the world. The vast resources extracted by business for society’s use have created waste streams that find their way into our land, air and water and compromise human health. New businesses are being built on an understanding of the problems that have emerged through the 20th century. Increasingly, old businesses are evolving to use fewer resources, intensify the resources they do use, and renew and reuse the products they sell. New relationships are forming between businesses as firms realize synergies from interdependence; one firm can profit from another’s waste, or several firms can benefit through flexible supply chain relationships built on common interest.

The 21st century is revealing a new paradigm in which business is no longer separate from society. Realizing the new “business-as-society” paradigm will require the efforts and ingenuity of organizations across sectors and industries. It will challenge the current generation of business leaders to apply their hard-won knowledge to novel problems, and the next generation to evolve into conscious leadership and address issues of unprecedented importance and complexity. Those businesses that identified the hurdles and challenges described in this article, along with those businesses that aim to overcome them, will help to shape this new business landscape. The concept of sustainability is undeniably compelling.

Let’s consider for a moment the move towards a paradigm whereby the business decisions were aligned with the best ecological decisions, ie conscious business and conscious service. The business case for sustainability draws on several core arguments. Pro-environmental practices create positive brand associations among consumers, politicians, and regulators. They also anticipate regulatory trends and position the company favorably when such policies become law. The mindset shift required that seeks to further efficiency in materials and waste carries over into other realms of conscious leadership. Similarly, the innovation required to overcome environmental challenges promotes innovation generally. And employees have high morale when they believe in what their company is doing.

However, there are still many barriers to sustainable wealth creation as it would appear. When we take a step deeper into the definition of service, fear usually comes up, uncertainty, and a moment of self-definition. Who am I and what do I serve? Whether inside or outside the business world, the same questions arise.

“It doesn’t fit the business model” or “How are we supposed to measure the impact” are common examples of why it requires a mindset shift to start building sustainability from supply chain activities to HR practices.

Mirjana Boznovska

Mirjana Boznovska

Ordinarily such principles fall into the realm of self-awareness, self-mastery, and spirituality, separate from, and opposed to the world of commerce. Essentially a desire that comes from within, to have a positive impact and make a difference in the world which comes from the highest calling to serve. Leaders seem conflicted. It is time for this separation to end. Everyone, even the most jaded corporate executive, yearns for it on some level, yearns to align his/her productive life with his deepest care and highest values. Essentially it is the human condition, that we each want to know that we have made a positive difference in the world. This does not mean to ignore business realities and throw caution to the wind. It means to take the next, slightly scary, slightly outrageous, next step. It is the step for which there is no credible “business case.” It comes from a different motive – it comes from within.

In fact, the “business case for sustainability” does hint at something true. When we take a step into service, the world eventually reciprocates our generosity, albeit in a form and timing that is impossible to predict. A business “case” involves numbers and predictions, but the general principle that it is trying to convey is that the gift moves in a circle. As you do unto the world, so, in some form, will be done unto you.

To take this next step always requires at least a little courage, because it goes against familiar practice and predictable financial self-interest. Someday, hopefully soon, we must change the business environment to end the opposition between profit and ecological well-being and promote the alignment of ecology and money.

Herein lies a vastly different sort of “business case” for sustainability. It comes from questions like, “Who are you, really?” “What do you care about?” and “What do you serve?” “What are your values and belief systems?” “What is your unique self-expression you bring to the world to serve others?” From a deep consideration of such questions, courage is born to overcome the hurdles.

Hurdles to Overcome for Business Sustainability

  1. Measurement of sustainability.

Sustainability initiatives can be particularly difficult to measure because they often affect people and society at a macro level, and their organizational implications are unclear. Further, their impacts are not immediately obvious, and they depend on who implements them and how. Many suites of metrics and measurement systems—such as the Global Reporting Initiative, ecological footprint, and life-cycle assessment—currently exist to help managers measure their sustainability. Government policies need to incentivise outcomes and be more clearly connected to sustainability. Governments have several tools at their disposal, such as taxes, regulations, and markets, to encourage businesses to steward environmental resources.

  1. Consumer choices do not consistently factor sustainability into their purchase decisions.

Understanding how consumers value sustainability in the context of other product attributes would help businesses develop products that meet their needs. Further, there may be a role for business in educating consumers on issues and product attributes, resulting in more informed purchasing decisions. It also applies to investors. Shareholders and lenders must decide where to invest their money. How do they choose between different companies, which requires trading off one set of corporate attributes for another? Understanding how people make trade-offs will help businesses make sustainable choices.  

  1. Sustainability still does not fit neatly into the business case.

Companies have difficulty discriminating between the most important opportunities and threats on the horizon. Better guidelines are needed for engaging key stakeholders,

  1. Research shows employees would rather work for sustainable firms—and some would even forego higher earnings to do so.

Firms must better leverage this knowledge to attract and retain the best employees. These mechanisms should allow firms to leverage their sustainability initiatives and values, building the right capacity internally and ensuring progress is made towards sustainability goals.

  1. Current financial decision-making does not fully capture the value of sustainability-related investments.

These investments are often based on long-term and intangible rewards, whereas many investments made are based on the short-term impact on the bottom line. Sustainability managers need to be well informed exactly how returns on sustainability investments can be measured and seen. What are the short-term and long-term ways to assess and justify these investments? How can sustainability executives demonstrate the value of sustainability within the decision-making language and framework of finance executives? Until sustainability becomes accepted as a legitimate—and value-creating—activity, it may lose out to projects that are more easily understood and evaluated.

  1. Businesses need guidance on how to evaluate the materiality of an issue, both for disclosure purposes and for strategic planning.

Equipped with an understanding of which risks and opportunities are most material to their organization, managers can then prioritize material issues, translate them into internal strategies, and communicate them to stakeholders. There is no common set of rules for sourcing sustainably.

  1. Businesses want to purchase products and services that are environmentally and socially responsible. But the process of identifying sustainable suppliers is not always straightforward, and the means for comparing products is not always obvious. Sustainable sourcing decisions may also require industry-specific knowledge and practices, or data that just may not be available. Identifying a set of best practices for sustainable sourcing would provide organizations with targets for benchmarking as well as guidance on managing their supply chains. It would also yield an opportunity for leading businesses to showcase their good practices.

The Old Money Paradigm and Why It’s Not Sustainable

While conventional investing only focuses on the traditional risk and returns considerations in making investment decisions, socially responsible investing considers other ethical factors .The world needs to focus on mutually beneficial partnerships, fostering sustainable development across the continent, targeting the continent’s inhabitants as its primary consumers. Reports such as one published recently by the Business and Sustainable Development Commission, show that sustainable business is an untapped $12 trillion opportunity, making sustainability the most lucrative business sector there is.

What Is Money? Why Was It Created?

Money, in some way, shape or form, has been part of human history for at least the last 3,000 years. Before that time, historians generally agree that a system of bartering likely used. Money derives its value by virtue of its functions: as a medium of exchange, a unit of measurement, and a storehouse for wealth. It is merely an exchange of energy.

A New Paradigm Shift in Wealth Creation

Creating and amassing wealth is more than just a necessity. For centuries, the practice of climbing the ladder to richness has led to wars, influenced literature, and shaped cultures. Whether wealth comes in the form of money or food, all civilizations have pursued it.

The system of wealth creation is based on the current worldview, which in turn is based on the way science is studied and perceived. Most people will not be aware of existing paradigms of wealth creation. They will be too busy accumulating and creating wealth rather than being concerned with the process which they and their wealth underwent.

The paradigm is all about teamwork – to create wealth, everyone must help each other succeed. No longer are the lesser indebted to make the greater richer. Everyone has to run the race, but everyone must hold hands to reach the finish line together.

Sustainable Wealth Creation addresses three very important questions:

  • Do financial statements accurately reflect a company’s position?
  • Do shareholders have protections and adequate controls?
  • Can company leadership make decisions confidently?

Sustainable Wealth Creation principles help answer these important questions by investigating the accounting, legal, regulatory, adjudicative, and economic structures of a country.

Economic systems change at a surprisingly fast pace. Since the information varies over time, the information needs to be monitored and refreshed to gain important insights when making investment decisions involving international equities.

An iceberg is a metaphor for traditional investment analysis regarding international equities. Most international analyses parallel domestic analyses by focusing on the traditional metrics that are akin to the visible part of an iceberg. The hidden information is like the submerged portion of an iceberg. It is key to success (or even survival) but not readily discovered.

What Lessons Are You Teaching Your Children About Money?

Modelling a way of being to our children.

If you don’t take the opportunity to educate your child how to manage money, the value of money and sustainable wealth creation, somebody else will. They will fall within the collective way of thinking. Conscious parenting involves sharing with our children the awareness of our environment, our power of choice, personal responsibility and self-mastery.

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