Around a year ago I was sitting in a boardroom with my colleagues discussing how best to interact with our clients and network on the subject of ESG investing. Being responsible stewards of capital was already baked into our investment approach, but we were ready to become more vocal about exactly what that entailed.
My job that day, was to talk about how other financial services firms position themselves so that we had a good sense of what our clients – most of whom work with multiple financial institutions – were already being faced with. I duly launched into a PowerPoint presentation packed with the ESG materials and websites of other investment firms (from global banks to hedge fund managers) and immediately felt the scepticism in the room. I looked at my colleagues’ expressions, tinted green by the reflection of stock imagery forests, windfarms and lush landscapes, and realised that if they felt distrustful of the messaging, they probably aren’t the only ones. The underlying thought is easy to imagine:
“these people are trying to pull the organic, hand-spun wool over my eyes”.
In the span of a year, we have seen almost every major financial institution ditch the usual array of cityscapes and men-in-meeting-rooms, in favour of imagery that speaks to sustainability, social inclusion and green growth. Of course, we have simultaneously seen some very real advances in the adoption of ESG integration across the industry, so this isn’t all lip service. But the pace and breadth of the ESG marketing rollout in our industry has created a trust gap. If my colleagues - who are professional fund selectors - sense that some of the marketing around ESG extends beyond the real activity of these firms, then other people (including those who don’t work in our industry) will feel the same way.
The noise around this topic leaves many firms with a
dilemma; how do you talk about ESG and responsible investing in a way that is
authentic to what you do as a firm, without seeming to be jumping on a
bandwagon, or worse, greenwashing? This is something that the industry is going
to have to work out over the months and years to come, but here are three
elements to explore:
1. Find the right balance between feel and framework
The responsible investing communication spectrum is broad. It runs from the eye-wateringly dry (the policy documents, the integration frameworks, the scoring tables…) to broad based descriptions and declarations of corporate purpose. Both have a role, but balance is key. Our investment team have met firms with beautiful marketing language around sustainability, only to find that they have no formal ESG investment policy. On the other hand, there are plenty of firms that use policy documents to display their credentials rather than truly thoughtful communication. One of the best ways to strike this balance, is simply to listen to your colleagues. If your external communication mirrors your internal communication, it will feel authentic.
2. Don’t overpromise
In examples like the above, firms can easily lose face with
savvy investors, but there are real risks involved with language and
communication when it comes to responsible investing. In 2019 a $39bn Australian
pension fund was sued for not adequately disclosing or assessing the impact of
climate change on its investments, the case has since been settled, but it’s
hard to imagine that it will be the last of its kind.
3. Embrace debateYou’ve probably seen the infamous scatter chart that plots the ESG scores for S&P 500 companies by a handful of the most prominent ratings agencies. It looks like a Jackson Pollock painting. But even were the industry to reach a common standard in ESG scoring, we will never be able to scrub the subjectivity from responsible investing. It is inherent; what one group of people deem ethical can always seem immoral to another. Investment writers like me struggle with this; we’re trained to write persuasively about why our team’s views are right, not to say, “this is something we’re still working out”. But being upfront about the fact that there are elements of the responsible investing transition that are subjective and that you are actively debating, is surprisingly powerful. It cuts through the cynicism with which people can view the subject, and shows that you are willing and able to accept complexity.