Responsible investment has three faces: environment, society and governance. Good governance doesn't get much attention, but it can truly make a difference.
When people talk about sustainable investment, they usually think first of the environment and renewable energy. Investors can undoubtedly push companies to commit to the fight against climate change: but that's not all. According to the Forum italiano per la finanza sostenibile, sustainable and responsible investment is "an investment strategy oriented towards the medium to long term that, in the assessment of companies and institutions, integrates financial analysis with environmental, social and good governance analysis, with the aim of creating value for the investor and for society as a whole". Beyond the environmental pillar, then, there are two others: society and governance. Governance is not often discussed, but in certain cases it is precisely the element that can make a difference. This is highlighted in a Forbes analysis.
A company with good governance is committed to operating fairly and ethically. It ensures fairness in remuneration, avoiding disparities between men and women, guaranteeing all employees a minimum income and capping executive pay. It is a transparent company regarding its business models and the way it allocates its funds, takes action against corruption and discloses any lobbying activities and support for political parties. It is a company that seeks to avoid concentrating all power in a few hands, instead entrusting an independent board of directors with the task of upholding shareholders' rights.
On more than one occasion, responsible investors have succeeded in persuading companies to take concrete steps forward on the governance front. And there is reason to hope that, with the continued growth of interest in responsible finance, the cases cited by Forbes are only the first in a long series.
One of the hottest topics is that of gender equality within companies, including in positions of responsibility, all the more so since some studies have begun to suggest that companies with women at the top perform better in the markets than others. The fact that there is a woman among eBay's board members is also thanks to Pax World Investments, which since 2012 has tabled motions on gender equality at eight major companies, convincing five of them.
Parnassus Investments decided not to invest in pharmaceutical giant Valeant, challenging its business model. The decision proved well-founded: between 2015 and 2016 the company found itself at the centre of extremely serious accusations, including that of having inflated the prices of its drugs to an extraordinary degree, which triggered a collapse in its financial results.
Since 2008, when the collapse of US bank Lehman Brothers triggered the global financial crisis, executives' mega-bonuses have come under the scrutiny of the public and regulators around the world. It emerged, in fact, that in some cases managers had engaged in reckless conduct to inflate short-term profits and pocket their bonuses; or that companies rewarded them while cutting jobs. It is no coincidence that one of the hobby horses of responsible investors is the so-called "say on pay", meaning transparency on executive pay.
Good governance also means protecting the data security of one's customers. When Verizon acquired Yahoo! in 2016, responsible investors did not miss the opportunity to point this out, given that a few months earlier around one and a half billion Yahoo! accounts worldwide had fallen victim to hacking attacks.