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Active active sustainable investment

| Posted by: Paul Donovan | Tags: Paul Donovan Weekly

  • Active or passive fund management is often presented as a simple choice. The investor picks a fund manager with insight to seek economic value. Otherwise the investor just tracks an index, taking what returns the market throws out. Increasingly, this is only part of the story. Active managers have many ways of being active, both economically and sustainably.
  • Shareholder activism is when investors try to get companies to change their way of doing business. And increasingly, this activism is incorporating sustainable investing considerations. An investor with social or environmental goals could put new money into suitable projects. Alternatively, the investor could buy equity in companies and try to get those companies to change their behavior. Equity capital in an economy is five to ten times the size of new investments.  Changing the behavior of existing capital is a big way to bring about change.
  • The motive for active investment can be both social and economic. Investors want companies that make the most of what they have. The best people should be employed. Waste of energy and other resources should be minimized. The company should appeal to a wide range of consumers. In particular, the company should appeal to younger consumers (representing future spending power). All of this argues for active active, sustainable investment.