ESG: WHAT WAS IT? WHAT IS IT RIGHT NOW? AND WHERE IS IT GOING? EVERYONE’S OPINION IS THE RIGHT ONE, SO WHERE DO YOU GO FROM HERE?

Financial Advisory

24 June 2021

AdviceAdvisory DistributorsAuthenticityClientcomplianceCOP26Corporate GovernanceEnvironmentalESGFinancial AdvisorygovernanceGreenwashingInvestmentssustainableVirtual

Expert: David Beacham, Business Development Director, Carmignac and Facilitator: Jo Goddard, Founder and lead consultant, Green & Good Consulting

Key Takeaways:

  1. Should ESG be seen as business as usual? An ESG proposition is both a hygiene factor and a differentiator
  2. The language in this area is confusing with too many acronyms and lack of consistency across firms and products
  3. Is ESG really the right term to be using with clients?
  4. Standardisation, collaboration and certification can be helpful
  5. Authenticity and values drive engagement 

Context:

ESG investments are becoming the norm within asset management, with advisors now expected to have an opinion and knowledge in this area. The prominence of ESG has evolved over time and in some respects has become a confused area with an array of acronyms and approaches. During the pandemic the prominence of ESG has risen with it becoming a must have proposition for financial services firms. The industry – which may have been given a bad name by previous well-known leaders – may find an ESG proposition a good way of defining the positive impact it can have.

1. Should ESG be seen as business as usual?  An ESG proposition is both a hygiene factor and a differentiator?

Environmental, social and governance issues are rising in prominence within the investment community, with advisors needing to provide knowledge in this area to their clients.  Over the past few years, the market has developed significantly, with some good returns on investments and increasing consumer awareness of ESG issues. For some advisors their ESG offer is very much seen as part of doing business as usual, whereas for others it is more a separate topic of conversation. What is clear is that having an ESG proposition is important and can be a helpful differentiator between firms.

In an ideal world an ESG proposition would be well integrated into the business with all stakeholders believing in the values and purpose of the approach.  Some of the largest businesses in the world have successfully done this, but the topic area is vast and needs to be applied to financial services, the advisory space and then towards individual client’s needs.

The complexity is further exacerbated by the fact that there are many ESG ratings, many different approaches that firms take to investments and impacts that they want to have. Perhaps there is no one right way to embed ESG, no one perfect proposition, but the key to success is to be authentic, develop your own beliefs and seek engagement from the top to the bottom of the firm.  In turn, this will bring positivity and a sense of togetherness throughout the company.  

2. The language in this area is confusing with too many acronyms and lack of consistency across firms and products.

The terminology surrounding this area can be confusing.  What started as ethical investment, then SRI (socially responsible investment) and now ESG – can cause some issues with firms and clients.  Should we be cautious that the use of the term may lead to mis-selling?  Some advisors use the term sustainability which more easily explains the issues the business faces internally as well as in the investment proposition – with some finding that this term has more connection with the target audience. ESG ratings do more to confuse than clarify with a lack of consistency across the range.

3. Is ESG the right term to be using with clients?

Is there a right term or acronym?  Is ESG the right term to use when describing your approach to this area to clients?  Could corporate sustainability be a better term? There’s possibly no right answer, but the term chosen should resonate with employees, customers and clients, with ESG being the term used purely in relation to investment management. This provides the industry with an opportunity to explain what it means by this term and build understanding accordingly.

4. Standardisation, collaboration and certification can be helpful.

Some firms are looking towards standardisation, collaboration and certification.  Organisations such as the B Corp assess and certify firms who align themselves to a set of sustainability principles and commit to improving their impact each year. They also help as a convenor and collaborator with others to drive collective impact towards sustainable goals. Becoming a B Corp is a tough accreditation to achieve, those who do it, find it helps differentiate both as an employer and advisor. Other collaborations such as the Impact Management Project and the Make Money Matter campaign (spearheaded by film maker Richard Curtis) are useful as frameworks and engagement tools.  Proof points such as the Forbes Best Employer’s list show who is doing well in this area – what lessons can be learnt from this for those developing an ESG proposition based on talent attraction and retention? 

5. Authenticity and values drive engagement.

As ESG has become more widespread over the past year, there is a danger that applying a blanket approach within your firm may not have the desired result.  Therefore, it is important to be authentic and align your proposition to the firm’s values to drive engagement, internally and externally, and to think long term about the impact the firm wants to have.

The hope is that, over time, we will move towards ESG not being used at all as it is completely integrated into the business and sustainable practices become business as usual.


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