Sustainable investing, ESG or greenwashing?
Some years ago, I did some work for a very private and very successful boutique investment management firm. Their success was based on a matrix of strict ESG-integrated investment criteria enabling them to identify and invest in sustainable businesses capable, irrespective of market conditions, delivering long-term returns for institutional clients of between 5 and 7%.
That might not sound like much, but when you are a pension fund struggling to meet your obligations, that can be a very attractive proposition.
The firm’s investment strategy was very much long-term buy-and-hold and, despite assets under management just short of $100bn, invested in a very limited number of stocks, many for over 15 years. Their ESG credentials were regularly called into question with suggestions of greenwashing not uncommon.
At the time, one of the firm’s investment managers was adamant that ESG was just a fad; a manifestation of the current zeitgeist that would disappear over time. A contentious view, but one that might, just might, if we manage to maintain the current momentum, come true.
“Each company’s prospects for growth are inextricable from its ability to operate sustainably and serve its full set of stakeholders.”
Inevitably, when the CEO of the world’s largest investment management firm puts sustainability so definitively at the top of the agenda, investors, trustees and CEO’s pay attention. Indeed shortly after Larry Fink’s statement, in January this year, two of New York’ largest pension funds voted to divest of $4bn of fossil fuel investment.
And yet, according to an article in the Guardian, also from January this year, BlackRock itself remains invested in fossil fuels to the tune of $85bn. In the same article, Lara Cuvelier, a campaigner from Reclaim Finance is quoted as saying: “it’s hard to see Larry Fink’s sustainability commitment as anything other than greenwashing”.
On the face of it Lara and Larry may seem to be at loggerheads. But could it be that they are actually on a similar journey albeit at different speeds and with differing agendas?
At Emperor, we have regular conversations with clients about sustainability and ESG and where they are in their journey. In truth, it doesn’t matter where they are. What matters is that they don’t simply issue boilerplate platitudes with little to no evidence of genuine intent.
What matters is that they have identified what they can materially do to ensure they can operate sustainably to the benefit of all stakeholders for the foreseeable future. And that they have put credible metrics in place to reassure all stakeholders as to the direction of travel and their commitment to progress. As one investor said to me earlier this year: “ESG should be communicated in a way that evidences value-add and value creation, and it should be quantifiable, being able to talk about what you are doing in a genuine and transparent way has never been more important.”
- Identify the most relevant material issues that impact your business in terms of your ability to operate sustainably for the foreseeable future.
- Develop a strategy with relevant metrics that will enable the business to evidence progress against those material issues.
- Map out an attainable long-term sustainability strategy.
- Establish how best to communicate consistently with all your stakeholders.
As we have seen, fossil fuel extractors are the all too obvious target in the sustainability debate. But with BP redefining themselves from an International Oil Company to an Integrated Energy Company in 2020, and backing this up in February this year by paying record breaking fees for offshore wind rights in England and Wales, it is clear where they are heading. And with other oil majors accelerating the pivot to low carbon, it may not take quite as long as previously thought for sustainability and ESG to become so embedded and integrated in corporate culture as to no longer merit separate mention.
So while I am not sure we’ll ever get to the stage where we can look Generation Greta in the eye, wouldn’t it be quite something if in the hopefully not too distant future we could stop talking about sustainable or ESG investing and even greenwashing and return to simply calling it investing?
As an employee-owned creative consultancy agency, Emperor can support you wherever you are on your sustainability journey and help you to achieve your objectives. Please don't hesitate to get in touch at [email protected]