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February 21, 2011
Strategies Offered to Accelerate Sustainable Investment
    by Robert Kropp

A recently published white paper from the World Economic Forum (WEF) seeks to contribute to a global transition to sustainable investing.

Identifying climate change and increasing demand from institutional and retail investors as key drivers behind the adoption of sustainable investment, a white paper published by the World Economic Forum (WEF) states, "A sustainable investing approach can lead to better risk-adjusted financial returns."

Finding, however, that "only a small percentage of investors include ESG (environmental, social, and corporate governance) factors in their investment and ownership decision-making processes," the paper, entitled
Acceler ating the Transition towards Sustainable Investing, found that barriers to the uptake of sustainability exist for investors and corporations, as well as at a systemic level.

"Key barriers at system-wide level," for example, include "disproportionate focus on short-term performance and issues with a near-term impact, and the fact that many negative externalities are underpriced," according to the paper.

The paper reports that the Sustainable Investing Working Group of the WEF has provided several recommendations for accelerating the transition to sustainable investing, which include long-term performance assessment periods for fund managers and the incorporation of ESG factors into financial performance criteria by corporations.

The Working Group also recommended that analysts and executives work together to develop sector-level key performance indicators for the incorporation of ESG factors into corporate reporting.

In addition to the above recommendations, an appendix to the white paper describes additional strategic options, including the stimulation by accounting bodies of integrated reporting, mandates from policymakers for corporate reporting on ESG issues, and the widespread provision of ESG data by data providers.

The appendix also points out the importance of active ownership by institutional investors, "through engagement, shareholder resolutions and/or proxy voting."


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