Volume 21, Number 12
Diane-Laure Arjaliès investigates how financial markets can better integrate sustainability concerns into their investment practices.
According to the 2013 UN Global Compact CEO Study, 63 per cent of CEOs expect sustainability to transform their industry within five years and 76 per cent believe that embedding sustainability practices into core business will drive revenue growth and new opportunities. Financial markets have a responsibility in driving change towards that kind of sustainability, and according to the above data, our corporate leaders seem to understand that mandate. Why then are some investment managers and corporations more socially responsible than others? And what can be done to ensure sustainable performances?
Assistant Professor Diane-Laure Arjaliès’ research addresses these types of questions, delving into the ways financial institutions can better integrate sustainability practices into their daily procedures.
With a background in accounting and several years of experience in responsible investments at an asset management company, Arjaliès has been able to assess first-hand how management can bring sustainability concerns into their investment practices.
“I did not want to be an investment manager, but I wanted to understand what I was studying. That’s why I decided to enter the field and become directly involved,” says Arjaliès.
Challenging the industry
The financial industry currently faces increased pressure to become socially responsible. Arjaliès has conducted numerous interviews with investment managers and financial authorities in order to try to understand how they approach the issue.
“The industry used to be self-regulated and highly technically oriented, but this societal pressure requires the industry to rethink its governance structure and the way it interacts with different stakeholders like politicians and NGOs,” says Arjaliès.
Rethinking the governance structure and evaluation tools of financial markets has proven to be a difficult task. The industry and its current set of evaluation tools simply cannot accommodate socially responsible investment (SRI).
“The problem is that there is no perfect definition of SRI,” says Arjaliès.
“Everybody has their own views on what is considered to be socially responsible. And as a result, what could appear as a challenging integration of environmental criteria by an investment manager could easily be interpreted as greenwashing by NGOs or citizens like you and me.”
Arjaliès’ research shows that such challenges require financial markets to rethink the way they interact not only with the general public, but also the way they think about their profession. She notably studied the French asset management industry that recently agreed on a public SRI label which does not mirror the criteria usually adopted to define a mutual fund, such as asset class, risk or investment style.
“They instead favoured what we named a ‘goal-based product category,’ which consists of making clients reflect on which societal and financial goals they want to pursue when investing their money and see whether these goals are aligned with those pursued by the investment manager.”
To illustrate the idea of this “goal-based product category,” Arjaliès gives the example of writing a book.
“Someone may write a book because they want to earn money and others are going to write a book because they want to change the world. That may be the same book, but the goal is different.”
Arjaliès points out that this process is a contrast to the way markets used to be organized, as introducing SRI to the markets calls for consumers to be much more informed in their decision-making.
“I believe that an increasing number of industries are coming under public scrutiny and will have to find ways to address these clients’ needs while allowing for some diversity. Not everybody wants to invest in such kinds of products but as a manager, you need to be sure not to be accused of greenwashing or this could ruin your entire reputation.”
Arjaliès explains that although almost no company would publicly say that it does not care about the environment or the society, still more work needs to be done to help investment managers and asset owners address these issues in their daily practices.
“This requires us – management scholars – to think about new ways of conducting business,” she concludes.
Social change starts in the classroom
As one of Ivey’s newest faculty members in the managerial accounting and control and sustainability groups, Arjaliès will be tackling a brand new core course for HBA2s on Sustainable Finance.
In line with her research, the course will examine the responsibilities and roles of financial markets in driving change towards sustainability. Arjaliès will encourage her students to explore how to transform investment practices and how to use financial markets to change companies’ behaviours, while protecting beneficiaries’ assets.
“Financial markets are extremely powerful, so my thought is that if you want to trigger change, you need to go and work with the financial markets,” says Arjaliès. “I wanted to work with business school students because they are where the (future) power is.”