Dealing with green ‘hypocrisy’

Everyone’s going ‘green’. We all know that. But green is not all black and white.

Voices of caution – if not dissent – can be heard about ESG investing. It’d be reckless for a pension scheme to publicly broadcast any reticence on the matter; a certain Scandinavian school girl would be pitching her placard outside your office.

So, a pension scheme manager speaking off-the-record told the Lens recently – and quite reasonably – that to have not invested in alcohol, tobacco and oil over the past 20 years would have led to significant underperformance of the portfolio.

Selfish? Not entirely. The same DB manager of the scheme argued that not investing in tobacco would have collapsed the economies of villages that produce the evil weed in certain parts of the world.

You’ve heard this side of the argument before, of course. But among other issues this raises for ethical and sustainable investing, it also points to a problem for active managers and pension funds in the years ahead in explaining their global investment capabilities. There once was a time when many actives with the scale could boast of their “go-anywhere” investment ability. It’s a fact that many managers, if not all, still have this go-anywhere approach, and that means investing in ‘sin’ stocks at a time when they are simultaneously pushing their ESG capability. The industry can expect to be put on the coals about this as they stew in their own alleged hypocrisy.

Managers and schemes will have to explain how modern ESG investing involves engagement with companies in preference to screening them out. They will need to explain their philosophy behind engagement and, more importantly (or so the Lens feels), provide hard evidence – names, case studies, results. It will not be enough to give a rough sketch of engagement processes in fund literature. Even proudly parading numbers of shareholder resolutions supported or opposed by the manager at the AGMs of un-named corporates will not suffice.

The public will want stories – and so will the press. The Lens suggests that if you’ve got a story to tell, then tell it.

Click below to read more from the The Lens on ESG:
– ESG should not be an add-on feature of investment advice
– ESG: Your heart better be in it