Global Investing

An Australian local government superannuation fund has become the latest state-owned fund to invest in environmental funds.

Local Government Super (LGS), which manages around A$6 billion in assets for 100,000 local government employees in New South Wales,  has invested A$50 million ($45.96 million) into a portfolio which invests in small cap environmental technology stocks, run by London-based Impax Asset Management.

The portfolio will follow an investment strategy followed by one of Impax’s fund, which returned 47.71 percent in the last five years, versus 20.10 percent for the benchmark MSCI World Index.

A greater involvement by state-owned funds would give a boost to the Socially Responsible Investing industry, which has so far failed to give convincing returns (obviously Impax’s fund above looks like an exception).

As analysed here, investing in ethical investing serves a multitude of objectives, especially for sovereign wealth funds keey to be accepted in the West.

Emerging markets may not be the obvious destination for your ethical investment. Rapidly expanding economies are consuming a lot of energy, pumping CO2 in return. Many of these markets suffer from legal and political problems that keep investors on their guard.  BRIC legal systems have room for development.  Their financial disclosure is still patchy. 

However, BNP Paribas sees opportunities as it believes fast growth in these markets and increased inflows would create the need for a socially sustainable environment for investment.

“Our analysis has unearthed a number of particularly promising sustainable investment strategies in emerging markets. In each of these cases we see a real economic need linked to maintaining high growth rates, but also evidence that policymakers are recognising this need and are putting in place the necessary policy measures to facilitate this development,” the French bank said in its latest Sustainable and Responsible Investment (SRI) newsletter.

Sovereign wealth funds, eager to be accepted in the West, are increasingly interested in showing the world that they care about environment and governance by investing in socially responsible firms.

It all sounds good, but the biggest shortfall of Socially Responsible Investing (SRI) is that it lacks convincing performance details. Therefore, SRI or ethical investing for SWFs is not just about returns: It allows them to combine a multitude of objectives, such as portfolio diversification, enhancing transparency, meeting social goals and gaining acceptance even among critics who suspect they operate politically.

SRI, already a $2.71 trillion industry in the US, involves buying shares in companies that manage environmental, social and governance risks. For example, firms which make clean technologies are in, while businesses that pollute the environment, abuse human rights or produce nuclear arms are out.