Responsible investing is going mainstream and Singapore funds should step up

BLACKROCK chief executive Larry Fink's recent letter to chief executives of large public companies caused tremors in the investment world, with good reason.

It is unusual for an asset manager to take such an explicit stand on social responsibility: Public and private companies, he wrote, must do more than deliver financial performance. They must "serve a social purpose'' and make "a positive contribution to society''. Already there is intense debate on what exactly social purpose means and whether it is grounded in economics. What of tobacco companies whose products are detrimental to health, but use part of profits for social purposes? Or socially responsible companies that are unprofitable? What seems clear is that BlackRock will use its heft - it manages some US$6 trillion - to take a far more activist stance than it has in the past on companies' commitment to ESG issues. It has done so in the past to great effect. Last year, for instance, it helped to pressure Exxon to beef up its disclosures on climate, and Exxon has agreed to publish climate impact reports.

BlackRock's strong stance is part of a wave of responsible or sustainable investment that is gathering pace. Large pension funds and asset owners increasingly demand accountability among companies they invest in. For example, activist investor Jana Partners and the California State Teachers' Retirement System, which together control some US$2 billion of Apple shares, recently asked Apple to consider software to allow parents to limit their children's use of iPhones. In numerous surveys, wealthy millennials, who stand to inherit some US$30 trillion in wealth over the next few years, emerge as strong believers in responsible investments, shunning assets that do not align with their personal values.