The day you realise that you are possibly not yourself an investible ESG asset is rather humbling. I spent this weekend in the garden with friends. We drank alcohol (social bad), some of us ate burgers and sausages from the barbecue (environmental and animal welfare bad) and much of the rubbish at the end of the day, I admit, was not separated out fully, with paper plates and cellophane going into a black bin liner.
That’s what happens when you have tons of toddlers around and a kitchen that’s too small for hosting. On the other hand, we didn’t drive anywhere and everyone travelled to our house in electric vehicles; the food was local – even the meat – and most of the waste was in fact paper. So am I, on the back of this small anecdote, a sustainable enough person, do you think? Sustainable enough to accuse others of being unsustainable in their practises? I am truly not sure.
In the ESG – environmental, social and governance – investment world, there is an issue of people in glass houses throwing stones. An investor, such as a large bank or insurer, which is also a plc, may reject a potential investee company on the basis of a poor ESG record, while the investor itself may be regarded by another investor as not sufficiently up to scratch on ESG to be investable.
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So what should they do? Publicly lambast the company that does not meet their standards in the name of encouraging that company to improve? Or, keep quiet, lest another investor does the same to them, with an added helping of an hypocrisy accusation on the side. Most asset managers that also have their shares bought and sold on public markets take a fairly dignified position and choose not to mudsling too much, although they are now under pressure to demonstrate where they engage and be more transparent about investment decision making, which might come across at times as hypocritical.
Of course, knowing that they are not alone in having increasingly demanding ESG criteria is a reason in itself to raise their own standards in order to attract and retain investment. But there are good reasons to publicly expose poor practise – a dose of media attention for egregious executive pay or massaged carbon reduction figures can go a long way to a speedy clean-up operation. Smaller asset managers that are not PLCs and also mutual organisations are in a privileged position when it comes to throwing stones – they do not have to worry about retributive dirt-digging to the same degree.
We could leave all the stone-throwing up to independent NGOs, charities and think tanks, but they are often run on a shoestring and while they are full of passionate and clever people seeking to do genuine good, they do not always have the same resource or clout as large asset managers with billions under their belts.
We could leave it up to investigative journalists, alas likewise, they also have time and resource constraints. Investigations by journalists reveal the odd big scandal, such as the extraordinary ITV report that aired this week, nicely timed for ‘Prime Day’, on the disposal of vast amounts of perfect goods by Amazon, a company often found in sustainable funds and that has raised billions through sustainability bonds to assist in the delivery of its low carbon and social sustainability targets). However ongoing, relentless scrutiny of claims versus reality is harder.
One way to resolve the farcical situation of investors sometimes behaving worse than the companies they might reject on ESG grounds is to look inwards. For large asset managers, this means getting their own houses in order. For glass houses that are very large, with many rooms, this is easier said than done. But if it isn’t done, they could quickly become a victim of the ESG policies they apply to others. They also leave themselves open to accusations of greenwash, impact-wash or any other kind of wash you can think of.
If you’ve ever been for any kind of talking therapy, you will know that counsellors often ask you to focus on the things you can control, not those that you can’t. This means focusing on your own behaviours, habits and practices and how you can change them for the better; rather than focusing on what you wish to change about others around you that you feel affects you negatively.
This is a useful approach for investors who are tempted to keep finger wagging rather than continuing to work on their own culture and carbon emissions. It’s also useful to us, the consumers of financial products, as we think about where to invest our ISAs and where to bank. These are things we can largely control. So people in glass houses, put the stones down for now and go and have a quick tidy-up. And if you do have a view on whether I would be an investible ESG asset, please let me know.
