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Without attention to values, ESG is just a style, and like in the fashion world, styles come and go
If we don’t pay attention to ESG values we could lose the driving force of responsible investment.
Jay Youngdahl
Late last year, Wolfgang Engshuber, Chair of the United Nations Principles for Responsible Investment (PRI), told Responsible-Investor.com that, in terms of the development of the PRI: “the honeymoon is over.” Engshuber was correct, but he could have been describing the entire movement for responsible investment (RI) as well. For the movement to fulfill its crucial promise, it must be recognized that the hard work has just begun. RI is in its early years of the marriage of investment “value” and “values.” It is an alliance of partners with different backgrounds. Like in any good marriage, the caring inspiration that kindled the courtship must be retained if the marriage is to succeed. The needs and contributions of each partner must be respected and continually refreshed. Every time I attend a gathering focused on responsible investment and environmental, social and governance concerns, I am constantly reminded that the people drawn to this area, especially the young people, are there because it fits their values. This often joyful sphere of activity is a place in which one can join with others to be part of something good and to make a living. The articulation of values that attracts this crowd provides the energy and the raison d’être for RI. However, the responsible investing movement is quickly approaching an inflection point as the mainstream value side threatens to suffocate its
values partner. Put simply, RI has the potential to merely become a style of investing. Academic evidence mounts that ESG investing can add value to the portfolios of investors, large and small. But the nature of the research is quite similar to that which underpins arguments for value or growth investing. While being merely a style of investing is not a terrible thing, it will mean the promise of RI has been lost.Indications abound that the values component is being shortchanged. In the recent MSCI/Responsible Investor roundtable featured in Responsible-Investor.com, a representative from MSCI outlined the direction, saying, “When you’re talking to the traditional, mainstream investment community, you need to be clear that there’s a way of approaching ESG integration that has pure financial motivations.” While this may be true for those attempting to sell to Wall Street and the City, if one must fit ESG within the values of contemporary finance that have brought the world to the brink of ecological and social mayhem, what is the point? If ESG becomes a value-less style of investing then the passion and fresh optimism that characterizes the best and the brightest in ESG and RI will evaporate as well. Another example can be seen in the decision of the PRI, an asset owner-led organization at its outset, to place service providers on its board. This move is problematic, though understandable financially and
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