The world’s economy and investment system separates ‘values’ from ‘value’.
The leading sustainable business advisor Andrew Winston asks in a recent article whether the time has come to add morality to the business case for sustainability. He wonders whether in making the business case for sustainability initiatives in a narrowly financial way, ‘we’re overlooking something critical about what motivates the decision-maker’. He goes on, ‘I’ve talked to senior executives for many years about why they care about sustainability, and very often it stems from a personal journey. They went to the rainforest, or their children asked them about their work and their legacy.’
Having worked in sustainability for nearly thirty years and ‘responsible investment’ (RI) for nearly seventeen of those, I could not agree with Winston more.
For the last ten years the RI world has devoted enormous effort to developing and advocating a business case for institutional investors to pay attention to environmental, social and governance issues – on financial grounds. RI has sought to differentiate itself from ‘ethical’, ‘socially responsible’, ‘sustainable’, ‘impact’ or ‘green’ investment on the basis that it does not seek to combine financial return with a ‘moral’ or ‘ethical’ return.
This effort has been enormously important. Huge progress has been made in demonstrating that it is in investors’ own interest, particularly in the long term, to factor sustainability into what they do.
Yet everyone working in this field knows it’s tough going.
People do this work – and I include myself here – because they care deeply about sustainability; because of our values. The world has built an economy and an investment system that separate ‘values’ from ‘value’. They give insufficient financial value to many of the things that as individuals we value the most: a healthy environment, social justice, fairness. Climate change, inequality, the financial crisis – all are failures to align value with widely shared values.
This is how investment organisations work. And we have come to believe that we cannot work within them unless we think in the same way. We frame arguments in the language of ‘materiality’, ‘risk’, and ‘performance’; or on a different wavelength, ‘client expectations’. But despite this we often find ourselves going against the grain of the investment industry: long-established cultures, norms and behaviours in finance continue to resist sustainability arguments, language and world views – even in new financial clothes. Portfolio managers may assume that if they don’t know about an issue, by definition it cannot be relevant. Finance as a whole has become so detached from the real economy that it can be hard for investors to feel a connection with the people whose money they manage and whose interests they are supposed to serve; or the people on whom their decisions have an impact. The tension between (financial) value and (human) values can be acute.
Why is it that we do not allow ourselves to remember that many sustainability issues that are relevant to investors have their roots in values and ethics? Financial implications arise because people care – as consumers who make purchasing decisions; workers who have expectations of their employer; voters whose opinions prompt action by governments; members of society who collectively create norms of corporate behaviour. And caring is about values and ethics.
“We need to reconnect our values with our investment work”
As a colleague put it, ‘we take the heart out of responsible investment at our peril. If it’s all reduced to picking a few data points that have predictive power, then we’ve won the battle but lost the war’.
We also forget – or we are surprised to discover – that investment professionals, at all levels, share many of ‘our’ values. At a personal level they too care about climate change and human rights abuse. Sometimes they can even find ways to reflect this in their work. I have encountered numerous examples. The global equity fund manager who would not invest in companies involved with Sudan, because of human rights abuse. The structured credit investor who would not touch a deal to finance privately run detention centres for asylum seekers where there had been allegations of human rights abuse. The agricultural land guy who could see that biodiversity damage was a potential investment risk because he was a birdwatcher.
At senior levels, it’s perfectly clear that some Chief Investment Officers simply look harder than others for innovative ways to address climate change, or have greater concern about whether the investment industry has lost a sense of social purpose. I know from my own conversations with these leaders that this can be linked to religious faith and to other deeply held personal values.
An awareness of personal values does not need to crowd out investors’ professionalism. It does not cause people to disregard the need for returns or the imperative of fiduciary duty. It is part of the context within which people bring their professional skills to bear. It can bring more options and possible actions into view. It stimulates creativity and innovation. It prompts the reflection, ‘Perhaps there is a different path to this destination’ – a path which, incidentally, might turn out to have investment advantages too, such as lower risk.
The conventional ‘professional’ approach to investment, and the ‘business case’ approach to ‘responsible investment’, hold that personal values have no part to play (beyond business ethics issues such as dishonesty). Yet denying our deepest personal values cuts us off from an important part of ourselves – perhaps the best part of ourselves. It can cause frustration, disengagement and demoralisation – surely not what organisations want from their employees.
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