Impacts and challenges Primary challenges of RI

Enhance public awareness of and interest in the challenges associated with Responsible Investment

RI has already significantly impacted the practices of many organizations (e.g. Home Depot, JP Morgan Chase, Nike, McDonald’s) and will continue to do so going forward. The more citizens concern themselves about the environment and their future, the more they will become aware of the major role that RI plays in enhancing their quality of life and that of future generations. As a consequence, they will be increasingly less likely to support practices which fly in the face of their values and principles. The impact of responsible investment can therefore be said to be broad-based.

Suggest realistic, workable solutions.

When one seeks to initiate change and shake up the current order of things, one of the first steps one must take is to gain an awareness of currently existing impediments. Unfortunately, too many individuals ignore this basic, all important step and seek out immediate results which more often than not, ends in deception. Just as one is powerless to obligate someone to stop smoking, one cannot force organizations to change traditional practices overnight. The world of business and finance is complex. To spur lasting change, responsible investment must be based on an approach which makes allowance for known limits and suggests action and solutions which are both realistic and achievable. This having been said, there is no need to shelve one’s ideals. More often than not, these very ideals inspire one to keep going when the going gets tough.

Overcome the lack of understanding

When they make the switch, many investors view responsible investment as some kind of ‘miracle’ alternative certain to have tangible short term impact and certain to systematically separate responsible from non-responsible organizations. This rather idyllic view of responsible investment is fraught with the risk of both deception and frustration, especially for individual investors with deep-rooted social and environmental convictions. It goes without saying that investors each have their own set of beliefs, values, principles and selection criteria. However, RI options cannot be readily tailored to meet the individual requirements and/or expectations of each. There are several reasons for justifying the presence of one or more controversial or personally deemed non-responsible organizations in a responsible investment fund. The best way to avoid deception is to enhance one’s awareness of the limits and possibilities of RI, and the choices available to one at a given juncture. The success of responsible investment lies not in a miracle solution but in shared efforts on behalf of investors and sectoral players.

Promote and develop a long term vision

RI is, first and foremost, a long term process. Tangible social and environmental impact (e.g. enhanced water quality or working conditions) albeit real take a certain time before they can be perceived. In the near term, action initiated by investors generally has but a limited impact on the practices of controversial organizations which continue to enjoy access to the funds necessary for their ongoing development. For example, during the last financial crisis, the shares of Wal-Mart Stores Inc. continued to rise on market indices despite the company having been excluded by a number of investors owing to discriminatory, anti-union practices (Novethic, 2012, p. 29). This having been said, in the medium and longer terms, pressure exerted through the likes of shareholder engagement, public opinion and government regulations ultimately positively impacts the practices of organizations concerned about their image.

Take advantage of transparency-related successes to maximize social and environmental impact.

At present, the most significant impact occurs at the corporate accounting level. More and more, companies are disclosing information formerly concealed from the general public and the authorities. For example, when Ethos Foundation decided to exclude Glencore mining group, media fallout ultimately led the company to publish its first ever sustainable development report and spur an initiative for enhanced transparency on behalf of resource extraction companies (Novethic, 2012, p. 29). This transparency is the first essential step in helping alter traditional corporate practices. Indeed, when made public, socially unacceptable or reprehensible behaviour tends either to disappear or at the very least to diminish in magnitude. However, transparency alone does not suffice. Rather it must be accompanied by an increase in awareness and spawn tangible action aimed at maximizing positive impact for the company or companies involved and the environments in which they operate.

In short, individuals who choose responsible investment should not invest with the hope of ‘changing the world’ in a few short years, but rather expect that action, initiatives and the means necessary to provide for change are set in motion. Responsible investment options remain in the early stages of development and cannot be readily adapted to the values and principles of each individual investor. To be certain that one’s RI choices are consistent with one’s expectations, the solution is to read up regularly on the companies in which one’s money is invested and monitor action taken by fund managers based on the strategies employed.