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Taking the long view: A toolkit for long-term, sustainable investment mandates

May 2016 – Short-termism in financial markets has been widely identified as a cause of underinvestment, economic inefficiency and poor decision-making by corporations, that undermines long-term value creation. This report provides a toolkit for investors who wish to design investment mandates that can help shift the investment chain towards responsible, long-term value creation.

 

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Taking the long viewContext

Short-termism in financial markets has been widely identified as a cause of underinvestment, economic inefficiency and poor decision-making by corporations, that undermines long-term value creation.

About the report

This report, developed by the Investment Leaders Group (ILG), a network of 10 leading investment managers and asset owners, provides a toolkit for investors who wish to design investment mandates that can help shift the investment chain towards responsible, long-term value creation.

The toolkit

The report provides a toolkit of 10 design features to help investors design or assess investment strategies that can make a particularly strong contribution to long-term responsible and sustainable investment (LTRSI).

Long-term responsible and sustainable investment

As defined by the ILG, LTRSI is "investment that promotes increased long-term value creation by companies and in the economy as a whole, and more sustainable business practices by companies. Investment of this kind is characterised by a clear and disciplined investment philosophy, process and culture, rather than a rigid set of rules or criteria. It focuses principally on long-term factors that determine companies’ earnings, rather than short-term factors that may predominate in determining share prices. Its time horizon is likely to be five years or more. Committed stewardship is an integral part of long-term, responsible and sustainable investment."

Investment strategies

The toolkit includes investment strategies that can contribute to value creation – improving long-term returns for savers and clients, at the same time as contributing to the environment and society in which they operate. It outlines a set of 10 design features which can be adjusted to deliver varying ‘strengths’ of LTRSI in an investment strategy and mandate to suit an asset owner’s particular circumstances. The approach focuses on investment time horizons and the extent to which sustainability factors are embedded in the investment process.

First and foremost the paper addresses active listed equity strategies, both because it forms an important part of asset owners’ portfolios and because it gives investors post-investment rights as share-owners and opportunities to influence company behaviour through voting and ongoing stewardship activities. 

Citing this report

Please refer to this report as University of Cambridge Institute for Sustainability Leadership (CISL). (2016, May). Taking the long view: A toolkit for long-term, sustainable investment mandates. Cambridge, UK: Cambridge Institute for Sustainability Leadership.

Published: May 2016

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Lead authors

The lead authors of this study were Rob Lake (independent consultant) and Will Oulton (First State Investments). This study benefited from invaluable input from the members of the ILG, in particular Yashil Desai (Old Mutual Group), Jon Duncan (Old Mutual Group), Johan Mellerup (PensionDanmark), Jens-Christian Stougaard (PensionDanmark) and Manuel Lewin (Zurich Insurance Group).

Disclaimer

The opinions expressed here are those of the authors and do not represent an official position of CISL, the University of Cambridge, or any of its individual business partners or clients. This report is not, and should not be construed as, financial advice.