Spotlight on our new Academic Network Advisory Committee members

What are the key challenges to RI?

One of the biggest challenges to responsible investing is how politicised it has become. It is no longer framed as doing the right things alongside risk-return optimisation considerations. People have lost sight of the basic tenet of RI, which is to avoid supporting firms with measurably negative externalities and whose profit maximisation results in meaningful harms to society (tobacco, pollution, gambling, etc). RI, in the US now, is viewed as having a political agenda. This makes it difficult to have a rational and fact-driven conversation on the topic.

What benefits can the Academic Network and the PRI’s wider research programme bring to the field of RI?

We need to bring the conversation back to the classic economic framework of managing ‘negative externalities’. We need to make this a direct application of well-known and well-understood economic theory on externalities. This is not some new foo-foo made-up untested theory from the left. And, we should stop untrained researchers from running silly backtests to prove that simple ESG screening would create alpha; that kind of pseudo-research actually drives away serious academics and even turn them against the RI field.

What would you like your contribution to be to this work and what would you like to bring to our programme?

I hope to bring the RI conversation back to basic economics and to move the conversation away from the Left vs. Right framing. I hope to bring more honesty into the RI research — to encourage RI researchers to acknowledge the fact that firms that optimise profits through externalising costs unfairly to others can be very successful and can be great investments. If we want the discussion to be rational and fact-driven, RI supporters cannot subscribe to an approach where the end justifies the means. RI research must be honest and based on sound theory if we want to encourage honest debates and not be drawn into and drowned by emotional political drama.

What are the key challenges to RI?

The role of investors in driving the transition towards a low-carbon economy is pivotal. By directing capital strategically, investors wield significant influence: they can steer companies towards achieving net-zero emissions, promote climate-friendly technological innovations, and support businesses in adapting to climate-related physical risks. In this capacity, investors can complement public policy efforts.

However, investors’ preferences for sustainable investments are heterogeneous and evolve over time. Individual investors, in particular, often lack comprehensive education on climate and sustainable finance, making them susceptible to emotional influences and manipulation through social media. Understanding the drivers behind investors’ sustainable preferences, promoting sustainable investment demand through initiatives like information dissemination and nudging, and ultimately comprehending investors’ impact on financial markets and corporate behavior are crucial.

Another challenge lies in the quality of Environmental, Social, and Governance (ESG) data accessible to investors. Advances in Artificial Intelligence have given rise to a new breed of ESG data that isn’t solely reliant on information provided by companies. Techniques such as textual analysis can gauge firms’ ESG incidents or verify the authenticity of their commitments, while satellite and sensor data can assess companies’ environmental footprint and estimate their exposure to physical risks. Despite the promise of this technology, it presents challenges concerning transparency, susceptibility to manipulation, and associated costs, including environmental ones.

What benefits can the Academic Network and the PRI’s wider research programme bring to the field of RI?

The PRI enjoys exceptional access to institutional investors, enabling it to gain insight into their motivations, practices, and challenges. This privileged position facilitates meaningful dialogue between academia and industry, enabling the exploration of crucial questions surrounding investors’ sustainable investment practices and the promotion of academic research with practical relevance. Additionally, the PRI’s multidisciplinary academic network is a valuable asset, facilitating collaboration among researchers with diverse perspectives.

What would you like your contribution to be to this work and what would you like to bring to our programme?

As someone with a foot in both the professional and academic realms, I firmly believe in the immense benefits of collaboration between academics and practitioners. I hope to play a role in bridging the gap between these two worlds, fostering a deeper understanding of investors’ challenges, and facilitating the identification of relevant research questions and innovative solutions to address investors’ issues.

What are the key challenges to RI?

One of the key challenges is the lack of understanding of the trade-offs inherent in RI. On the one hand, the proponents of RI may have objectives and expectations that may not be easily met, or that may lead to investment distortions that are larger than the investor may be willing to tolerate. On the other hand, the opponents of RI may not appreciate the benefits of thoughtful ESG integration, or may erroneously assume that all RI objectives are excessively costly in purely financial terms.

Another challenge is data: investors may have specific financial and non-financial needs and objectives but may not be able to meet them with available data. Moreover, even when data is available, it tends to be noisy, possibly differs meaningfully across providers, etc. While these challenges are not insurmountable, the data analysis involved may require skills and experience that the typical investor may not have.

What benefits can the Academic Network and the PRI’s wider research programme bring to the field of RI?

The Academic Network is at the nexus of academia and investment practice, and can both assess investor needs and suggest ways to solve them. Moreover, the Academic Network is not tied to any commercial enterprise and as such can offer unbiased recommendations that are perhaps more likely to be adopted by the investment community.

What would you like your contribution to be to this work and what would you like to bring to our programme?

I have experience both as an academic researcher studying RI and as a portfolio manager building and overseeing RI solutions in practice. I believe this gives me a good perspective to opine on the outstanding questions and suggest ways to address them, based on both my own research experience and my knowledge of the broader field.

What are the key challenges to RI?

The key challenges include the quality of the data and agreement on ‘what good looks like’ when we measure responsibility. This landscape is rapidly changing with increased attention to these challenges, greater pressures from key stakeholders, and harmonised disclosure standards. But we are also in a phase of adjustment where the metrics and data quality will take some time to mature and our understanding and acceptance of them actually settle out. These are cultural and social processes as well as technical exercises. 

What benefits can the Academic Network and the PRI’s wider research programme bring to the field of RI?

A lot of welcome change is underway in the area of greater transparency and disclosure to support RI, but due to a number of reasons that are also cultural and political there is also considerable debate and scrutiny. Rigorous academic research, informed by and in conversation with practice and expertise from the finance, business, and regulatory communities can help discern viable paths forward. We need research output that supports robust, long-term decision-making while recognising that significant change takes time and ignites tensions that both constrain and accelerate such change. Researchers from across business disciplines can be inspired to be part of this effort. 

What would you like your contribution to be to this work and what would you like to bring to our programme?

As an organisational scholar who focuses on qualitative research to explore organisational and social change processes, I have a distinct perspective on what is unfolding within RI and in related debates and developments. I look forward to learning from others with different disciplinary and practical expertise, finding ways we can work together to deepen our understanding and actions to support RI.