The opposing viewpoints
Milton Friedman, the Nobel Prize-winning economist, argued in 1970 that the social responsibility of business is to increase its profits1. Proponents of RI, on the other hand, maintain that companies should target broader objectives while conducting their activities. According to them, environmental, social, and governance (ESG) factors should also be taken into account when assessing their performance. These perspectives, however, are not mutually exclusive.
The performance imperative
Research shows that integrating ESG criteria in conjunction with traditional financial analysis can allow investors to seize long-term growth opportunities. Taking them into consideration can improve risk management and contribute to more stable returns over time. The issue, therefore, is not whether profits are necessary, but rather how they are generated.
- Sustainable development practises can prevent environmental damage and the associated backlash from stakeholders.
- Inclusive hiring and progressive human resource policies can help
attract and retain top talent while reducing costly turnover.
- Better governance rules can increase shareholder value by
preventing short-sighted decisions that may harm long-term
The Responsible Investment Association’s 2022 Canadian RI Trends Report illustrates how generating better risk-adjusted returns drives the respondents’ integration of ESG factors into their decision-making process.
The key takeaway
The best way for any business to achieve a sustainable competitive advantage is to build and maintain mutually beneficial relationships with its stakeholders. Demanding accountability from issuers can prove lucrative for investors. Granted, those who push the responsible investment agenda today may have loftier goals in mind than profits, but that doesn’t mean their methods are bad for business.
NBI sustainable funds
For investors interested in responsible investment, here are some sustainable funds offered by National Bank Investments.