The virtuous circle

ETHICAL or responsible investing - where investors seek to profit from doing good - has been part of the equity investment universe for decades, in its sliver of a niche. But signs are emerging over the past year that this approach could come into its own - sooner rather than later. Today, ethical investing in public securities has evolved from ruling out the traditionally taboo - no "sin" stocks, for instance - to picking the best-in-class in terms of environmental, social and governance (ESG) factors, and integrating ESG criteria into financial analyses of securities. That the ethical approach is gaining favour is clear. In public securities, ESG-integrated or screened investments are mainstream among European investors today, says Andrew Parry, Hermes Investment Management head of equities and impact.

According to the Global Sustainable Investment Alliance's (GSIA) Global Sustainable Investment Review 2016, there are now US$22.89 trillion of assets professionally managed under responsible investment strategies, 25 per cent higher than in 2014. At end-2016, this segment had a 26 per cent share of all professionally managed assets globally.

In the private capital space, wealth is increasingly looking to make a real difference, and seeking out impact investments. These are defined by the Global Impact Investing Network (GIIN) as investments in private companies or organisations that seek to effect a measurable social and environmental impact, and generate a financial return at the same time. Investors may provide equity or debt capital.