The Decade of transitioning from Responsible Investment to Investing 2.0
For several decades, ESG and Impact Investing has been heralded as the way to address societal and environmental challenges. Present state of affairs must bring into question the efficacy of this strategy. The following challenges seem insurmountable.
Climate Change Destruction
Health Crisis (Diabetes)
Threat of War
List goes on.
One can only conclude that ESG and Impact are either too weak and not effective, or they are not large enough, or the entire methodology of environmental, social, governance, and financial risk and reward need to be redesigned.
That is a fact, although in a time of fake facts it doesn’t matter.
Why is there not a single bank, wealth manager, or major financial institution the leader in the “race for values investors”. We keep hearing how ESG and Impact is booming and trillions are pouring into the space. If that was true, then why is it that not a single bank is perceived as the leader, the champion, THE IMPACT BANK for UHNW(Ultra High Net Worth) or HNW (High Net Worth) Investors.
One only needs to engage with the Private Banks, Wealth Managers, or Mega Banks to understand the issue here. These institutions are spending nothing on ESG and Impact Investing capacity building. Spending is going to the following:
With this lack of commitment financially, psychologically and emotionally, ESG and Impact are just new products to add to the list of offerings to clients. It is not an important strategy!
It seems that the financial institutions are schizophrenic. All of them don’t want to be seen as a Sustainable, Impact or Values Bank, because they are afraid that clients or staff might leave . However, they also don’t want to be seen as a Bank not embracing ESG, Impact and Values Investing. Make up your mind. You can’t be partially pregnant. To paraphrase Danny Ocean asking Linus Caldwell in Ocean’s 11. “Your either in our out.”
I have met with many Private Banks and Wealth Managers. Nearly all seem to be really out of touch with clients wishes, particularly nextgen clients. The lack of commitment to see the opportunity for clients and the bank is beyond belief. Most of the time it is lip service and most of the time the banks just want to learn some tricks to convince their clients that they understand enough. However, when we (TBLI Group) speak to clients, they are keen, looking and open to a Values Investing strategy. When we ask “do you want a financial return with a social and environmental added values”, they all say, “absolutely. Can you do that?” If you want to you can. No one ever said to me “No I want all my money to make life miserable for everyone and I am working at that 24 hours a day.”
I have heard for years that the problem is the client. They are not interested. I don’t believe that anymore. Sure there are some clients that don’t believe or are not convinced. That is an educational exercise. Do the work to convince. When TBLI started, nearly 25 years ago, educating asset owners and managers, there was no PRI, CDP, EVPA, AVPN, Eurosif. No infrastructure at all. However, TBLI was still able to make inroads, and help build that infrastructure, because we were committed.
Recently, I was at FT seminar on ESG and Japan. The entire day was taken up with complaints by asset managers complaining that ESG date is not good enough. Over and over and over. They kept repeating “ESG is not Good Enough”. I have heard this for 25 years. The moderator asked are there any questions from the audience. I raised my hand and said that “I have heard for 25 years this complaint that ESG Data is not good enough. Why don’t you ever say that the financial data is not good enough? We have gone through a financial meltdown, Maddoff, Worldcom, Parmelat, Enron, etc. The financial sector has lost trillions of dollars and there has never been a single company that went bankrupt on questionable esg data.” I was told that my comment was not a question and we moved on.
Perhaps no one will take a leadership role to own the Values Investing space. That’s fine, but the market or clients are there. Particularly when we dispel the myth that there are no deals. There is no shortage of deals. There is a lack of infrastructure to find illiquid opportunities, at scale. They exist but they are not to be found in traditional places. Different neighbourhood. Doesn’t mean they don’t exists.
TBLI has spent 25 years educating asset owners and managers about ESG and Impact Investing. Convincing has never been a challenge, particularly when you speak to wealth holders. Banks need to allocate the resources needed to dominate the space and grow the industry. They need to approach this as they would if it was an M&A. Until that time, the only big story will be the press releases coming out about how such and such a bank is committed to Values Investing .
To paraphrase Yoda “Do or do not, there is no try”.
A pig and a chicken were walking down the road. As they passed a church, they notice that a potluck charity breakfast was under way. Caught up in the spirit, the pig suggested to the chicken that they each make a contribution.
“Great Idea!” the chicken cried. “Let’s offer them ham and eggs!”
“Not so fast.” said the pig. “For you, that’s just a contribution, but for me, it’s a total commitment.”
In March, I did an extensive road show in Asia, visiting Singapore, Hong Kong and Bangkok. It was quite intense. Some days I had nearly 8 meetings, but definitely worth it.
What struck me the most is that Asia has gotten the Values Investing bug, big time. Nearly all the presentations that I gave, and the people I met, and executive briefings I had, were not about why, but all about how. It seems a tipping point had been reached, at least by the people I was meeting. They all were curious as to why there was so much interest and what had happened to spark this interest. What were the drivers?
The presentations I made were about how Values (ESG and Impact) Investing had become mainstream and what has happened in the last 25 years to change the mindset of investors. The list below were very influential , as well as the efforts of many building the ecosystem of ESG and Impact, including TBLi.
25 year Milestones
Freshfields I & II
Equator Principles-50m – 10m
Carbon Disclosure Project
The Asians all felt that the Europeans were way ahead of the curve and very keen on Values Investing, from the beginning. I had to correct that perception. When TBLI started, there was little to no infrastructure to lay the ground work for ESG and Impact. The notion that the entire financial sector jumped up and gave TBLI a big hug, and embraced us, is a myth. It was a long hard slog.
I remember this experience vividly.
When I started (late 1990’s), I was invited to speak to the Dutch Insurance Association about Climate Risk and Sustainability. I started my talk explaining that a country below sea level should start to be concerned about the risks that rising sea levels would cause. The response from the large insurance Companies present was, “It’s not a problem for us if sea level rises, we don’t cover salt water damage.”. One could be come angry at the low level of understanding of that response, or translate in their language. I chose the later, by saying, “That is true, but you sell mortgages, and if 200.000 homes are submerged in water due to seal level rise, which become worthless, you have a big problem.”
Speaking in the language of the person who you are trying to convince has always been key to TBLI’s approach. The moral imperative doesn’t work unless you show the financial risk and opportunity. Don’t shout loudly in German to someone who speaks Chinese.
“Never underestimate the power of stupid people in large groups.”
A very dear friend of mine passed away this past weekend. Tessa Tennant has often been called the godmother of Sustainable Investing. She created so many organisations that helped build the infrastructure that we have now. Carbon Disclosure Project, UKSIF, Asian Social Responsible Investing, ICE (not Trump’s storm troopers) and countless others. She co-founded the UK’s first green investment fund in 1988, called the Merlin Ecology Fund. What were you doing in 1988? Now everything seems so much easier with respect to Values Based Investing.
Most of us stood on her shoulders, at one time, to get to where we are now. People forget that. It is easy to ride the wave of money flows going into ESG and Impact Investing, occurring now. That was not the case in the 1980’s. We should never forget that. Tessa was the polite, civilised, passionate, determined, terrier that just would not let go once she got her teeth into something. I admired her immensely for that, because it was easy to give up as the forces against ESG and Impact were monumental.
My wife used to call Tessa an eco-warrior, but the way she pronounced it, it sounded like “eco-worrier”. My family has known Tessa for a very long time, close to a quarter century. What I loved about Tessa is she knew how to laugh and have fun. She invited my son (Sam) and myself to her home (Glen House) near Edinburgh. It snowed the night, we arrived and the next day, she organized some make shift sleds (boxes, and garbage lids to slide down the hill. Sam and I loved it. Tessa loved to play games. She was great at scrabble, we never had a chance.
When she decided to quit her job and go to Asia to start the Asian Social Responsible Investing Association, I was happy that she had an important project. What most don’t know about Tessa, is that she is frugal (understatement). Lives simply and travels so light that she could fit her carry one in the back of the seat in front of her, where you normally can put your phone or papers. Never understood how she did that. I visited her in Hong Kong at her “home” which was a shack on the rooftop of apartment. Few realise how simply she lived and how little she took for herself to achieve her goal of changing the mindset of the financial sector in Asia. Totally self-sacrificing.
In November of last year, she invited Rieki (my wife) and I, along with a few other friends to Glen House to be together. No agenda, just taking the time to be together and take the time for reflection. In contrast to most who respond when you say I am in town, “ok lets grab a quick coffee at Starbucks and walk for 5 minutes to catch up,” Tessa and Bill (her husband) created a welcoming environment for us to reflect, enjoy, chat, walk, eat, drink and just live in that moment together and be there for each other. From that weekend, the seeds were sown for TBLI Impact Retreat which we will hold at Glen House in Sept, this year. The response was so overwhelming, that we are sold out and plan to hold it regularly at Glen. At least, until Bill gets tired of my jokes.
Tessa was always a great guest, as she blended in, and participated fully. The laugh was infectious and she thoroughly enjoyed my Curb Your Enthusiasm, George Carlin humour. She kept prodding me to finish my book using all the funny stories and quotes, and I will. Most important. She made a lasting impression on me and everyone who took the time to know her. She was the ultimate mensch. A person of great honour and value, that left the world in a far better place than how she found it.
Tessa, I am sending you one of my best and warmest hugs. I will miss our chats and walks. I can promise you that the Retreats will continue and we are all in your debt. Many are cutting the ribbons for the photo ops, but it was you that dug the holes.
Your physical being is gone but your spirit will always be there and it will manifest itself often, when we least expect it. Keep laughing. Big hug.