"Companies that manage these issues well are more likely to do well over the longer term."
For Ms Walmsley, investors should ensure companies are not ignoring long-term risks in favour of short-term growth.
She adds: "For example, it may make sense for today’s share price for a garment company to manufacture its goods in a sweatshop in a developing market. However, over the long term, that decision will damage the company’s reputation and turn consumers against it."
Therefore, companies which fail to grasp the importance and the speed of regulatory and reputational change will find themselves not only left behind by their more nimble peers, but also at the sharp end of enforcement.
Assess the client's priorities
It is important to test what a company or fund management group says, according to Thierry Bogaty, head of SRI Expertise at Amundi, because "analysing companies' CSR practices and strategies allows asset managers and investors to address specific objectives with their investment solutions".
This includes the mitigation of ESG-related long-term risks (such as climate-related risks), or the integration of opportunities (for example increasing consumers’ requirements for healthy and safe products).
By so doing, he adds, this should generate "long-term additional financial return".
While it is true that a well-run company will usually perform well financially, Anna Sofat, founder and managing director of Addidi Wealth, says it is not always as simple an equation when it comes to building portfolios.
Instead, advisers need to assess what the client really needs.
She states: "It used to be said that investing in companies with good CSR yields lower returns, because when other sectors do well, these companies automatically underperform against them.
"But it depends what your priorities are. From an environmental perspective, investing in firms that put CSR high up the agenda will ensure global problems, such as the impact of climate change, are at least addressed and checked."
Balancing the client's morals and motivations against the reality of the vagaries of the investment market is therefore vital for advisers.
That said, Ms Sofat says: "There is increasing evidence to suggest that companies with good CSR last longer and are more financially sustainable, so in the long-term, investing in these will be more sustainable too."
simoney.kyriakou@ft.com
