Institutional Investments and Responsible Investing

This chapter is designed to provide insights on the pertinence of responsible investing in both developed and developing economies in light of the international deliberations on sustainability and sustainable development. Responsible investing presents a strong business case for institutional investors to merge ethics with profitability. However, to develop a strong business case, it is imperative to dive deeply into the various forms of responsible investing, and the recent trends, drivers and barriers associated with it. Institutional investors pertain to various environmental, social and corporate governance (ESG) evaluation methodologies, subject to the type of financial instruments and availability of ESG data. These assessments help investors to undertake informed decisions and lead to ESG integration in several asset classes such as listed equity, fixed income, hedge funds and private equity. Although the extent of integration varies considerably across geographical domains and asset classes, there is an increasing recognition of better returns from ESG diversified portfolios. Several asset management companies (AMCs) are adhering to varied ESG integration approaches in developed economies. These approaches clearly cater to different application, research and management levels to be categorized as fundamentalist, believer, cautionary, discretion, statistician and transition-focused. Despite the rising signatories to the United Nations Principles for Responsible Investment (UNPRI), there are several deterrents which affect the growth of responsible investing. The reflective and exploratory approach undertaken in this chapter is likely to benefit students, academicians and professionals working in the domain.