The High Meadows Institute is currently in the research phase of the Future of Capital Markets project. This initiative will identify potential opportunities within mainstream finance and capital markets to accelerate the integration of sustainability related governance, social, and environmental factors into investment strategy and management practices. An advisory board of academics and practitioners will guide the development of the research, which will incorporate both qualitative and quantitative methods.
High Meadows Institute Insights and Working Papers
The High Meadows Institute is currently working with a variety of investors and asset managers to understand the challenges ahead for sustainable investing. Recent Institute-produced reports and writings include:
1. ESG Integration Practices of Sell Side Analysts – by the High Meadows Institute (Spring 2017)
In this report we examine how sell side analysts currently consider ESG factors in the valuation of companies and how consideration of these factors can be encouraged. The report, prepared by KKS Advisors, includes a survey of 365 sell-side analysts and detailed follow-up interviews into the inputs analysts currently use in their decisions and the incentives that influence these decisions.
2. Incorporating ESG Considerations into Engagement Practices – by the High Meadows Institute (Spring 2017)
In this report, under the guidance Institute board member and Harvard Business School Professor George Serafeim, we examine strategies to strengthen the integration of ESG factors in the active ownership and engagement practices of mainstream investment managers. The report, prepared by KKS Advisors, includes an analysis of both private and public ESG engagement strategies. It also features case studies on the private engagement strategies used by forum participants.
3. ESG Integration in Investment Management: Myths and Realities – by Sakis Kotsantonis, KKS Advisors, Chris Pinney, High Meadows Institute, and George Serafeim, Harvard Business School (Journal of Applied Corporate Finance, Spring 2016)
In this article, the authors discuss 6 myths around ESG investing and describe the current reality of the major challenges of strengthening ESG integration in mainstream investment.
1. Deutsche Bank ESG Investing Conference 2016 – by Laura Kramer, High Meadows Institute Staff (November 2016)
HMI President Chris Pinney joined colleagues in the corporate and financial sectors to discuss the complexities of climate risk and environmental, social and governance (ESG) investing. Recurring themes included the importance of incentives to change existing behavior and materiality to achieve better financial outcomes. Chris’ remarks focused on the current state of ESG integration and the need for investors to move beyond a perception of ESG as only risk management.
2. Defining Sustainability – by Carl Ferenbach, High Meadows Institute Chair (January 2015)
In this post, Carl Ferenbach writes how nuanced describing sustainability can be for a company, ultimately acknowledging that his private equity firm has obtained sustainable outcomes by basing investment decisions on beliefs of good management, long-term focus and leadership values.
3. Quaker Capitalism – by Carl Ferenbach, High Meadows Institute Chair (December 2014)
Carl Ferenbach uses this post to articulate observations around the evolving role of values and incentives in businesses, specifically in the financial sector. To do so, he looks at the changes capitalism has experienced through the last few decades.
4. Miles to Go Before We Sleep – by Chris Pinney, High Meadows Institute President (September 2014)
Chris Pinney discusses the key challenges that need to be addressed before sustainability can be fully embraced by mainstream investors. These challenges include financial incentives, credible data, relevant metrics material to performance, and overcoming the academic-practitioner divide.
5. Can Sustainability Help Companies Outperform? – by Chris Pinney, High Meadows Institute President (August 2014)
This post focuses on the findings of a McKinsey study that shows when companies pursue sustainability because they see ESG having a direct material and financial impact on the business, they ensure more efficient use of resources and return on capital, driving growth and product innovation. These leading companies were 3-5 times more likely than their peers to have a unified sustainability strategy integrated with business goals, strong senior leadership support in shaping sustainability strategy, and publicly communicated external and internal targets or goals for their sustainability initiatives and reporting on performance against them.
6. Building a Framework for 21st Century Capital Markets – by Chris Pinney, High Meadows Institute President (April 2015)
This spring, HMI is partnering with the Journal of Applied Corporate Finance to launch a major research project called The Future of Capital Markets. Our goal is to better understand what changes are now required if we are to build a sustainable governance and management model for the financial services industry that can ensure its future while serving the long-term interests of both investors and society.
1. Charting the Future for Capital Markets: A Survey of Current Non-Regulatory Industry and Multi-Stakeholder Initiatives – by the High Meadows Institute (May 2015)
This report delineates some of the most prominent multi-stakeholder organizations that are working to promote a sustainable financial system. These entities are working with investment managers and owners, often in collaboration with others, to enabling mainstream capital market organizations to embed environmental, social and governance issues into their management practices. The report also highlights organizations that fall within the mainstream capital market industry that are leaders in moving to a more sustainable model for the financial sector. These include both influential intermediary organizations as well as individual asset owners and asset management firms.
2. Charting the Future for Capital Markets: A Survey of Current Progress and Practices – by the High Meadows Institute (June 2015, updated January 2016)
This report looks specifically at how financial institutions are defining “sustainability” and how they are working to incorporate non-financial data on environmental, social, and governance (ESG) factors into their valuation models and investment strategies. The report starts by examining the leading methodologies measuring the impact of “intangibles” and ESG factors on financial performance. It then looks at the current strategies and practices of top asset owners, asset managers, credit rating agencies, investment consulting firms and stock exchanges based on publicly available data. A summary of the findings by group is below.
- Table on Asset Managers
- Table on Asset Owners
- Table on Investment Consulting Firms
- Table on Credit Rating Agencies
- Table on Stock Exchanges
- Table on Boutique Investment Managers
1. Sustainable investing and bond returns Research study into the impact of ESG on credit portfolio performance – Barclays (October 2016)
Barclays research shows that ESG can be applied to credit markets without being detrimental to bondholders’ returns. They found that ESG considerations created a small but steady performance advantage. Furthermore, issuers with high governance scores experienced lower incidence of downgrades by credit rating agencies.
2. Investors, corporates, and ESG: bridging the gap – PwC (October 2016)
Increasingly, investors are expressing interest in environmental, social and governance (ESG) issues. These issues are becoming more important in the investment decision-making process. Companies are paying attention, and some have begun to react to investor demands. However, the gap between information, communication and reporting on ESG between investors and corporates is a persistent problem. Read PwC’s take on bridging this divide.
3. Sustainability issues move from the periphery – KPMG (October 2016)
This KPMG Board Leadership Center interview of Harvard Business School professor and HMI board member George Serafeim reflects on his research on investor engagement with companies on environmental, social, and governance issues. It focuses on what increasing concerns over sustainability means for boards and corporate strategy.
4. The Financial System We Need: Aligning The Financial System With Sustainable Development – UNEP (October 2015)
A UNEP investigation found that a growing number of regulators and policymakers are working towards integrating sustainable development into the financial systems around the world. Many emerging countries such as Brazil and Kenya, in addition to developed nations like France and the UK, are leading this push, which could help channel larger amounts of private capital to more sustainable and inclusive economies.
5. Fiduciary Duty in the 21st Century – UNEP FI and PRI (2015)
Starting from the premise that failing to consider long-term investment factors such as environmental, social and governance issues is a failure of fiduciary duty, this report identifies barriers in the investment industry such as outdated perceptions about responsible investment, lack of understanding around ESG integration, little transparency on responsible investment practices, and inadequate analysis of the financial value of ESG. To resolve these problems, fiduciary duty must take ESG issues into account as part of all investment processes, as well as include investor transparency, long-term mandates, and better reporting on performance.
6. From the Stockholder to the Stakeholder – Arabesque Partners (March 2015)
This report provides an overview of current ESG research for interested practitioners. It finds that responsibility and profitability go hand in hand, proving a correlation between sustainable business practices and economic performance.
7. Aligning the Financial System to Sustainable Development: Pathways to Scale – United Nations Environment Programme (January 2015)
This report focuses on how to bring financial reform and sustainable development together. It suggests that by mobilizing investment to build inclusive wealth, by identifying areas of high potential, by building viable pathways, and by measuring performance in a sustainable financial system, social, environmental and governance issues can be addressed by the financial sector.
8. The Real Business of Business – McKinsey & Company (March 2015)
This piece argues that shareholder-oriented capitalism is the most important driver of widespread economic growth if companies focus on the long-term.
9. Investing in a Time of Climate Change – Mercer (June 2015)
With this 2015 study on the financial impacts of climate change, Mercer aims to help asset owners and investment managers increase the sophistication with which they consider the impact of environmental changes and policies and related factors on their portfolios.