From philosophy to SRI
The first socially responsible fund was created out 50 years ago. In the 1980s, the Forum for Sustainable and Responsible Investment was set up to shift investment practices towards sustainability. In 1999, the Dow Jones Sustainability Indices were launched. At this time, the growth of Sustainable Investing was perceptible, but, until the first decade of the 2000s, sustainable finance seemed to develop as an "niche" way. Moreover the financial literature was questioning the effect of sustainable investment on return and risk.
The environmental concerns of the 2000s, following the Kyoto Protocol, boosted this new trend. External and political forces promoted Sustainable Responsible Investement (SRI), for example, the United Nations with the creation, in 2006, of the Principles for Responsible Investment (PRI).
"Sustainable Responsible Investement (SRI) is an investment that aims to reconcile economic performance with social and environmental impact by financing companies and public entities that contribute to sustainable development regardless of their sector of activity. By influencing governance and the behaviour of actors, SRI promotes a responsible economy. "
From SRI to Impact Investing
In last 10 years, sustainable finance has become an unavoidable topic. The driving force behind this acceleration is, on top of regulatory obligations, the pressure from clients/investors (see "ESG, risk and return: a board's-eye view" of KPMG, 2018, for a study of prononcements and expectations from major institutional investors about ESG).
Over the years, ESG investing has progressed from being an alternative offering to becoming a mainstream product. Furthermore responsible investment strategies have diversified. The newer stategies seek to generate financial return and to create a positive social or environemental impact. It goes beyond SRI (see "Impact Investing Market Map" of PRI, 2018, for a complete review of evolution).
"Impact investing focuses on business models and the products and services these companies produce. In this sense, impact investing aims to positively impact society beyond ESG-related compliance and investing "
From Impact Investing to New IRR
The study of EY shows a shift from investors to a more rigorous evaluation of ESG criteria: 72 % of respondents said they usually conduct a structured methodical evaluation of nonfinancial disclosures in 2020, against 32% in 2018. The trend is also perceptible in decision-making: 43% of respondents who said that they have made frequent use of nonfinancial performance in investment decision-making in 2020, against 34% in 2018 (see "How will ESG performance shape your future?", from EY, 2020, for the results of survey of 300 institutional investors).
The challenge is to connect nonfinancial disclosures and financial informations and to ensure effective collaboration between finance teams and ESG teams. The future of sustainability in investment management for the CFA is to consider impact investing as an additive to investment theory and not a rejection of foundational concepts: Risk / Return (see "Future of Sustainability in Investment Management: From Ideas to Reality" form CFA, 2020, for a complete study of motivations to invest in ESG).
In order to combine Impact, Return and Risk in your investment strategies, you need an integrated information system with sufficient functional richness to develop your most complex investment strategies. AM-DIS is the solution to solve this new IRR equation:
- AM-DIS integrated information system allows you to leverage all financial and non-financial data from various providers, ensuring data quality and consistency.
- AM-DIS calculation engine, which offers no less than 1500 state-of-the-art calculation, allows you to define your objectives to be achieved within your constraints, according to your own criteria.
- AM-DIS integrated platform allows you to combine objectives and constraints from the 3 axes simultaneously.
- AM-DIS user-friendly interface allows you to quickly simulate your different strategies and easily adjust them at any time.