“Do you know the big problem with ESG investing?” asked the chairman of the insignificantly-sized investment company Kermitted Asset Management when we caught up after he returned from what seemed rather longer than “Oh, just a few weeks ‘working from home’ in the French place”. “Er,” I erred.
“That feels like a bit of a trick question.
“If our previous 30-odd – sometimes very odd – conversations have revealed anything, it’s that ESG investing has quite a few kinks to iron out before it realises its full potential of, well, solving everyone else’s big problems.” “No arguments there,” agreed the chairman. “And, of course, that’s what makes the sector such a, let us say, rewarding place to operate in for a business such as Kermitted.
“Nevertheless, amid all the stuff we’ve chatted through over the years – identifying a common vocabulary, how best to turn words into action, agreeing on a single name for the whole shebang – I’ve now had an epiphany as to ESG’s single biggest issue.” “How fascinating,” I deadpanned. “And which particular vineyard were you visiting at the time?”
“Yes, yes – very funny,” said the chairman primly. “As it happens, though, you were sitting next to me at the key moment – even if the significance only struck me later in … well, if you must know, this delightful little outfit we’ve found near Châteauneuf-du-Pape. Anyway, do you remember that conference we both attended a few months back with the panel session on ‘transitioning to a sustainable future’.
“That could describe quite a few events of late but I think I know the one,” I replied. “There was a panel of four men and a male moderator and, after a pretty interesting back-and-forth of 20 minutes, the first questioner from the audience started by pointedly observing we were two hours into the conference and she was the first lady to have spoken.”
“That’s the one,” nodded the chairman. “She then went on to observe, every bit as pointedly, that the panellists were not only all men but middle-aged and white – which I suspect may have come as news to one of them on two counts out of three – before asking why they had neglected to touch on the issue of gender equality in any of the preceding chat.
“Of course, the audience murmured approvingly and the panellists fell over themselves to demonstrate their inclusive credentials – not least the chap who felt he had to apologise for stepping in at the last minute to cover for a lady colleague. And yet, at no time in all of this, did anyone feel able to note the title of the session had been ‘transitioning to a sustainable future’ and so that’s what they thought they probably ought to focus on.”
“I seem to remember somebody noting nothing but that during the coffee-break straight afterwards,” I said. “Though you may well have had a point. Still, you mentioned something about an epiphany?” “How clever of you to remember,” smiled the chairman. “And it is this – the problem with ESG is that while everyone involved agrees we should be investing for the greater good, everyone involved has a different take on how to do that.
“Everybody flatters themselves they are being objective and unbiased whenever they think about ESG investing but human nature means they cannot help favouring particular areas – which means they disagree on how to proceed and, as ever, the precise nature of just what that greater good might be, which dilutes what ends up being achieved.
“Hence four panellists, one moderator and the overall organisers of a thought-provoking discussion on an important subject being passively-aggressively chastised for not addressing an issue they weren’t supposed to.” “And I’m guessing this has inspired a cunning plan,” I prompted. “Too right it has,” the chairman nodded. “The Kermitted Me-S-G Portfolio – giving the people what they want … any time, any place, any cause.”
“But doesn’t that end up exacerbating the very dilution effect you just mentioned – splintering your assets under management into lots of tiny pots of cash that don’t achieve very much more than making investors superficially happier and Kermitted actually richer?”
“Don’t hate the player,” shrugged the chairman. “Hate the game.”
This article first appeared in the September edition of Portfolio Adviser Magazine
