“Why are you looking so cheerful? I asked the chairman of the insignificantly-sized investment company Kermitted Asset Management when we caught up the other day. “Don’t I always?” he beamed back – quite disconcertingly. “Well, you traditionally look incredibly pleased with yourself, which I suppose amounts to the same thing,” is what I was about to reply before thinking better of it.
Instead, I went for: “You certainly always used to – but you really haven’t for a while. If I had to put a date on it, I’d say your mood swung about 18 months back, when investor flows into ESG-oriented funds slammed into reverse.” “Oh I’m not sure that was the reason” the chairman smiled on. “After all, to suffer outflows, you first have to enjoy inflows – so it’s been less of a problem for Kermitted than some of our fellow ESG pioneers.”
“I suppose that is one way of looking at it,” I nodded – electing not to risk dampening the chairman’s mood by querying his definition of ‘pioneer’. “To be fair, though, I’m not sure anyone would blame you for feeling a little down in the dumps as a purveyor of assorted ESG-oriented solutions – pretty much everything that could have gone against the sector over the last year and a half, has done.”
You could – if you really had nothing better to do – read more from Kermitted Asset Management here
“Oh nonsense,” laughed the chairman. “So performance has ticked down a bit in the wake of Russia’s invasion of Ukraine; the subsequent outperformance of problematic industries such as oil, coal and weapons; and value finally remembering how to make a fight of it against growth, which hasn’t been ideal given ESG strategies tend to lean towards the latter style.
“So outflows, as you say, haven’t been ideal across the sector as, despite everybody being happy to acknowledge the vital importance of ESG considerations towards the general good-running of business and, you know, whole survival of the planet, that apparently doesn’t extend to investing for the longer term and just looking to ride out any aforementioned periods of fallow performance.
“So it may well be that if, as some have suggested, I might possibly have launched Kermitted Asset Management with a view solely to benefit from the weight of money pouring into the sector and likely uptick in performance that would come from that alone, then I might not have been the only person thinking that way – which is ironic, really, given I often now feel as if I am the only person flying the flag for ESG.
“So climate and so many other elements of ESG have somehow got caught up in the culture wars and the whole subject has become toxic in the US and is showing some worrying signs of doing so in the UK. So the UK government looks to be scaling back its expectations in the net-zero arena for solid reasons of policy and in no way at all as a shameless attempt to pick up a few votes ahead of the next election.
“So things have become predictably more complicated and confusing as each of the main regulators has waded in with a wholly different view of the amount and variety of green tape they should be wrapping round the sector. So the industry itself has been showing signs of its periodic boredom with how to describe old-money ‘responsible investing’ and of casting around for yet another new name, which risks setting us back years …”
“So we should probably cut to the chase because, before you embarked on that little monologue, you kind of gave the impression there might be some actual reason for your good mood?” I prompted, looking at my watch. “Sorry,” the chairman apologised. “Once you start listing all the obstacles facing ESG investing these days, it can be tough to stop.
“And yet, no matter how grim things become, have you noticed how the most committed ESG investors always seem so optimistic about the outlook for responsible investing itself? Well, I thought I might try adopting that attitude myself – and, you know what? It really does work. I call it Melchett’s Law …” “Ah,” I nodded. “If nothing else works, a total pig-headed unwillingness to look facts in the face will see us through. Good luck.”