“Do you know the problem with marketing an approach to investment that relies on investors actually having to care about stuff?” sighed the chairman of the insignificantly-sized investment company Kermitted Asset Management when we caught up the other week. “Is it that, quite often, they just don’t?” I guessed. “Got it in one,” nodded the chairman glumly. “If only I’d been half as on-the-ball as you before launching this business.”
“What – Kermitted?” I checked. “What’s brought on this sudden and uncharacteristic burst of introspection?” “I’m not sure you could call it sudden exactly,” replied the chairman. “I mean, anyone with any empathy who had been eavesdropping on our conversations would have sensed months ago all was not green in the Kermitted garden.”
“Oh, for goodness’ sake,” I found myself exclaiming – and at some volume too. “So your ESG-oriented asset management firm hasn’t worked out the way you might have wanted. Seriously, what were you expecting? What was it about the history of ethical, sustainable, socially responsible investing over the last 35 years that led you to believe this was a smooth diagonal from the bottom-left of the graph straight to the top-right corner?”
You could – if you really had nothing better to do – read more from Kermitted Asset Management here
“OK, OK,” said the chairman soothingly, holding up his hands. “You – shh,” I snapped. “My turn to talk. So tell me, what aspect of most investors feeling they needed to prioritise the bursting of the dotcom bubble over ethical considerations, the fall-out of the global financial crisis over SRI and so forth gave you confidence this was a one-way ticket to untold management fees?
“Did you really expect ESG would sail on serenely forever? Granted, it was an unprecedented run and seeing off the pandemic jitters – indeed, actually picking up one final burst of momentum from it – was especially impressive. But there will always be some chunky potholes in the road of sustainable investing– even if this one was a war that somehow managed to combine the rehabilitation of oil and gas with making armaments virtuous.
“Look, deep down, the wonderful world of asset management knows something that looks an awful lot like ESG will be one of the huge investment themes of the coming decades – if not the huge investment theme. I mean – ‘Let’s look to direct cash towards companies that respect their staff and communities and the planet and encourage those who don’t to try harder’? We would have to be lunatics not to want to make that system work.
“But it won’t be called ESG – that’s just not how this industry operates. Let’s consider one of my experiences in this business for a change. When I first got involved with PA’s sister publication ESG Clarity, it very quickly became clear we would know the ESG battle was won when there was no need for the title to exist anymore. Not very ESG to talk in terms of battles, perhaps, but two observations spring from that.
“One is that the real reason the title does not exist anymore is your industry still cannot agree on a universally acceptable phrase for ‘investing in good businesses’. So the marketeers get nervous or bored or whatever about ‘ESG’ – just as they did about ‘ethical’ and ‘SRI’ – and we have to regroup and rebrand what was actually a rather good little title, even if I say so myself.
“Or maybe I’m being unfair to the marketeers – it certainly wouldn’t be the first time – and they didn’t get nervous or bored or whatever, which leads me to my second observation. Maybe the marketeers sensed the ESG war was pretty much won. I’m not remotely suggesting it’s time for tickertape parades and all that but, if you think about it, ESG was too nuanced a concept ever to work at anything but the most basic level of compliance.
“And, in the world of investment, of course, nothing screams basic compliance more than the ticking of boxes – and isn’t that where we are now? Surely even the most remote outposts of investment all have ESG considerations embedded in their systems and nobody’s pushing back anymore. The sustainability war will rage for many years yet but the ESG battle has largely been won – and not with a bang but with one giant shrug.”
This nonsense first appeared in the May 2024 issue of Portfolio Adviser
