Responsible investing a paradigm shift
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- 2 Окт, 2012
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Continuous increase in numbers Latin America has not lagged behind in this global transition; indeed, was a year in which sustainable investment has greatly expanded throughout the region. An example of this is the increase in the number of PRI signatories, which went from 28 in to, at the time of going to press, 69 in This shows a much greater interest and commitment on the part of institutional investors and investment managers in incorporating ESG criteria in their processes.
Financial regulators and oversight authorities are moving ahead with new regulations and technical guidelines to promote the disclosure of ESG information by market players. In addition to this, the Responsible Investing Program PIR in Peru, the Responsible Investment Taskforce in Colombia and the Green Finance Roundtable in Chile have gained greater importance in furthering knowledge, defining common standards and cementing collaborative relationships with issuers around the topic of sustainable investment.
As PRI signatories, we are making decisive progress with incorporating ESG criteria in our investment processes, doing so in a cross-cutting fashion with all types of assets. We have the firm conviction that this not only strengthens our investment criteria, but allows us to help create well-being and enhance sustainable development throughout Latin America. We understand sustainable investment as an investment philosophy, being aware that it is a process that we must build upon.
We are making good progress, having taken significant steps to factor ESG into our processes. Currently, our bottom-up analysis of potential investee companies includes a review of their ESG performance and their relationship with their stakeholders. To this end, we have developed a proprietary ESG assessment methodology that prioritises and weighs up environmental, social and governance factors within the context of the relevant sector. This provides an initial score based on input information that we obtain directly from these potential companies through ESG questionnaires, which we then proceed to supplement with analysis from an external data provider.
Analysing a large dataset in this way ensures that our process is all the more robust when it comes to identifying investment risks or strengths. Within this ESG universe, we have defined climate change as a major factor, understanding it as perhaps the greatest challenge faced by humanity; its increasingly tangible effects are having an impact on all sectors and geographies.
We will be carrying out a joint investigation on the potential for building a Latin American Market Portfolio that is aligned with this objective. We are also incorporating ESG criteria in our decisions to invest in alternative assets. We carry out rigorous due diligence that includes an assessment of the environmental and social practices deployed by the projects in which we invest.
Furthermore, we are striving to adhere to international standards. In terms of our infrastructure debt strategy, for example, we ensure that the projects that we finance are carried out according to the Environmental and Social Performance Standards of the International Finance Corporation IFC as well as its Equator Principles.
This requires that, in addition to complying with all applicable regulations, they must provide a comprehensive view of their impact and take compensatory or mitigation action when necessary. Investors may get back less than they invested, and past performance is not a reliable indicator of future results. Nothing in this material should be relied upon in isolation for the purpose of making an investment decision. You are urged to consider carefully whether the services, products, asset classes e.
You must also consider the objectives, risks, charges, and expenses associated with an investment service, product or strategy prior to making an investment decision. Morgan team. NON-RELIANCE Certain information contained in this material is believed to be reliable; however, JPM does not represent or warrant its accuracy, reliability or completeness, or accept any liability for any loss or damage whether direct or indirect arising out of the use of all or any part of this material.
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While Amazon thrived coming out of the dotcom bubble —which was based on the new paradigm of the internet—many of the other internet stocks did not. It took many years for dotcoms to reclaim price levels achieve in Even Amazon didn't definitively move above its year high until New paradigms don't always initially succeed. Many dotcom companies went bankrupt after the dotcom bubble, for example, and those that survived did so at significantly lower stock prices.
New paradigms are often followed by a reckoning because investors overestimate how much will change. They drive up valuations too high, and the prices fall significantly after reality sets in. Ultimately, companies have to produce profits to justify high stock prices. If the companies can't generate profits, no matter how novel their idea or product, investors will eventually grow weary and abandon the stock. New Paradigm Examples The term "new paradigm" became a widely used phrase in the s, as marketing firms and businesses began to use the term for almost any new product or campaign.
It was notably used during the dotcom boom years. At times, it seemed that anything and everything involved with the internet was described as a "new paradigm" or a "paradigm shift. Technology companies became a new paradigm for investors and analysts as their products and modes of thinking had the ability to fundamentally change the way that businesses operated and grew. The internet certainly did change things, but investors initially valued the companies too high. Their real value, at the time, was considerably lower than the peak prices to which investors drove these companies.
The Great Recession also provided a new paradigm for many investors, as the notion of rooting out and supporting more sustainable investments came into the limelight. It became important to some investors and asset managers to consider environmental, social, and governance ESG factors when investing. As became evident with the housing bubble and crisis, complex financial instruments like mortgage-backed securities without sound underlying assets proved disastrous.
Article Sources Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. This is driven by growing awareness that ESG factors influence company value, returns and reputation, and by an increasing focus on the environmental and social impacts of the companies they are invested in.
Negative screening, which excludes certain sectors, companies or practices, is the most widespread approach to integrating values in a portfolio or fund. Regulation Since the mid-nineties, responsible investment regulation has increased significantly, with a particular surge in policy interventions since the financial crisis.
Regulatory change has also been driven by a realisation among national and international regulators that the financial sector can play an important role in meeting global challenges such as climate change, modern slavery and tax avoidance. Prudential regulators are beginning to consider climate risk in the insurance market. Stewardship codes govern the interactions between investors and investee companies, to encourage better governance, and protect shareholders.
Guidelines, typically from governments or stock exchanges, encourage or require companies to disclose the information on ESG risks and opportunities that investors need. Disclosure can also raise awareness of ESG issues within a company, which can lead to them being managed better. However, work undertaken by the PRI on the topic has clarified that financially material ESG factors must be incorporated into investment decision making, including that: Investors should consider ESG factors, consistent with the time frame of the obligation.
Investors should consider disclosing the process followed.
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