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Doing good with your money: Socially Responsible Investing
In a world where people increasingly question the wider impacts of the products that they buy, it’s natural that investors are concerned that their investment also aligns with their values and ethical concerns. As BlackRock Chief Exec. Laurence Fink recently illustrated, the idea that business should be about nothing more than profit appears to have had its day.
Investing with social purpose
Socially Responsible Investing (SRI) can essentially be understood as an effort to promote concepts and ideals that bring about wider positive impacts. And that’s positive impacts for all: not only is SRI a fast-growing segment of the financial landscape, experts are increasingly arguing that it leads to better returns, as well as more sustainable businesses, and local economic development.
Of course, in much the same way that we all struggle to purchase products that are not having hidden negative impacts, it’s not all that simple to invest in a way that is socially responsible… How are you going to make ethical, environmental, social and corporate governance judgments?
We don’t have the answers, but we can give you an insight into how one organisation approaches their SRI goals…
Alquity
Alquity describes itself as “an asset management company working to transform how people invest.”. Taking a approach based on “the belief that doing good is good business”.
We spoke with Alquity Board Director, Suresh Mistry, to find out about the philosophy behind the Alquity approach, and how they apply it to investment in businesses, and in communities.
“Alquity targets attractive returns by investing in well run, transparent businesses and then contributing to long term sustainable growth by supporting development projects in the regions in which they invest, thereby aligning the values of investors, employees, holdings and communities.”
The Alquity philosophy and approach
Suresh Mistry: “Alquity was founded in 2010 with the explicit mission to transform how people invest – we work to achieve attractive returns while also creating a better, fairer world.
Alquity is an asset management business that connects investors to their investments and social progress in order to deliver better financial outcomes for all.
Our investments target attractive returns through portfolios that play long-term themes via transparent companies, with effective management who are aligned with shareholders.
Alquity funds are therefore responsible by construction, targeting consistent out-performance whilst contributing to long-term growth. This philosophy resonates across the broader business; we encourage fund manager engagement and are happy to share our analysis.
Further, at the corporate level we reinforce that social progress should drive financial success by donating a proportion of our management fees to development projects in the regions in which we invest. In this way, our business aligns the values of investors, employees, holdings and communities.
We believe these shared values are key to achieving enduring financial success.
We want to reset management behavior away from the short-term profit motive, which has been a root cause of many global problems such as rising inequality and pollution.
Responsible investment via ESG analysis and fund manager engagement
When Alquity is considering where to invest, our approach emphasises not only financial analysis, but also material non-financial factors… We incorporate Forward-Looking Environmental, Social and Governance (ESG) analysis to assess management capability and investment values.
We started with a clear conviction that ESG investing was not just the responsible thing to do, but was critical in gaining a deeper understanding of the investment and delivering better returns over the long term. It helps us to assess the values, capability and alignment of management teams so that we have confidence that our investments are in safe hands.
Our investment teams also engage directly with our holdings to share best practice and help them to improve their ESG behaviours and standards. It has been shown that improvements in these areas can have a direct impact on future returns through factors such as enhanced customer loyalty, employee motivation and avoiding poor governance issues, which can have a devastating impact on the share price. We believe in complete transparency and share our analysis with our clients across all our portfolios.
How the Alquity approach is applied to businesses: Alquity portfolios and the UN Global Compact
Through our integrated analysis of ESG and material non-financial factors, we actively support the principles enshrined in the UN Global Compact. Indeed, we set demanding standards for minimum behaviours and positive intent, on behalf of the businesses we invest in.
In addition, through our active engagement policy, we encourage a continuous improvement culture. This not only promotes progress in line with the principles but, from our experience, leads to material improvement in business performance and long-term investment returns.
Vmart, and the UN Global Compact principles 4 & 5: The effective abolition of child labour & The elimination of all forms of forced and compulsory labour
Vmart is a clothing retailer with around 150 stores in Northern India. Since we first met with the company we have engaged with them on the transparency and provenance of its products through the supply chain to ensure the production facilities did not engage unethical labour practices, such as forced or child labour.
They now undertake surprise audits of their supplier’s factories whereas before our engagement they relied upon a self-certification “trust” policy. In future Vmart plan to have employees permanently placed in supplier locations to ensure labour standards are maintained at all times.
Vietcombank, and the UN Global Compact principles 8 & 10: Undertake initiatives to promote greater environmental responsibility & Business should work against corruption in all its forms, including bribery
In Frontier countries, many regulatory and governmental institutions are in their early stages of development so there is a greater onus on management teams to set behaviour standards and maintain oversight.
In our engagement with Vietcombank this has manifested itself in numerous ways. Firstly, the management’s attitude towards disclosure and protecting minority shareholders. For example, their desire to increase the number of independent board directors and the high levels of transparency we experienced in face-to- face meetings. Secondly, by incorporating a consideration of environmental impact within its lending policies. Not only does this promote greater environmental responsibility but also improves the quality of its loan book, which is one of the reasons behind their substantial out-performance versus peers.
Investing in local communities
Alquity strive for meaningful and demonstrable social progress. Responsible investment may contribute to more socially and environmentally aware corporate behavior, but there are a whole host of additional factors that stand in the way of social progress. Things like poverty traps, lack of education and social exclusion. Transforming Lives is an integral tenet of our business, founded to deliver sustainable economic improvements to the poorest communities where we invest.
Encapsulated in our unique business model is the commitment to donate a minimum 10% of our revenues to charitable projects in the regions where we invest via the Alquity Transforming Lives Foundation. We partner with charities across Africa, Asia and Latin America on projects overcoming discrimination and poverty traps, creating sustainable livelihoods full of opportunity through micro-finance, vocational training and tuition fee loans.
By creating more opportunities to succeed, we help local economies develop and thrive. This, in turn, helps fuel our investments.
How Alquity approach is applied to local projects: The Alquity Foundation and the UN Sustainable Development Goals
Sustainable Development Goal 4: Quality education
In Peru we support Amantani, a charity working to enable indigenous children and young people to access high-quality education and fair employment. This helps to stimulate social development within these rural communities, where geography and lack of infrastructure provide an additional challenge.
Since 2008, Amantani has provided boarding houses to bridge the gap between home and school in Ccorca, an indigenous Quechua district nestled high in the Andes of Southern Peru. With Alquity’s donation they have been able to launch an ICT Academy within these houses, equipping the children with vital computer skills and transforming their work opportunities.
Sustainable Development Goals 5 & 10: Gender equality & Reduced inequality
Our partner in India, Hand in Hand, directly tackles gender inequality, particularly the exclusion of women in economic activity. Their strategy involves a micro-finance programme, developed to empower rural women with sustainable income-generation options. By focusing on trade and not just aid, the aim is to ensure these ventures are sustainable and enable women to leave poverty traps behind.
Case study: Najma
Najma found herself doing unpaid housework and her family struggled to make ends meet. She joined a self- help group run by Hand in Hand, where she learnt about basic accounting, and was taught business development and vocational skills.
This gave her the idea to set up her cycle repair shop, and the confidence to ask for an INR 12,000 ($200 USD) loan to make it happen.
Earnings from the shop have helped Najma’s family to raise their standard of living significantly, and has also made a big difference to her status in the family and society.
Is SRI the future of investing?
To wrap things up, we asked Suresh how Alquity sees the future of investing…
“We believe that responsible investing in all its forms will continue its progress from a niche component to an essential aspect of a fund offering provided to both retail and institutional clients. However, we believe that for real progress to be made into mainstream investment, responsible investing must demonstrate irrevocably that investing in companies that employ responsible corporate behaviours over the long term truly delivers better risk adjusted returns than those that do not. At Alquity, we believe that is just the beginning and our transforming lives approach provides the investment industry with a model for playing a more active and direct role in contributing to fairer, more sustainable economic development.”
Join us at the 2018 GGA Ceremony: To celebrate excellence in social impact and sustainability (and sample our vegan wines!)
You don’t have to be an entrant to come along to the GGA ceremony! If you’re involved in social impact or sustainability, the GGA is the place to be! From our ‘eco-tie’ dress code, to our completely vegan menu, we aim to set the standard for sustainable events, and we want to share our learnings with you. Find out more about the 2018 ceremony, here>>
To book, DOWNLOAD THE BOOKING FORM, and email it to karen@GlobalGoodAwards.co.uk. Refund requests will be accepted until 27th April.
