Hugh Wheelan: Which came first: the chicken, the egg or the investor letter?

Which came first: the chicken or the egg?

Or was it the letter co-signed by 100 global investors asking for governments to define the incentives that would enable the chicken v egg conundrum to be answered, and acted upon?

A silly question, perhaps.

But one I think we are increasingly expected to answer…

How so?

Last week, I wrote a bit of an angry-man piece about the way ESG gets reported in the media.

But my (our?) frustration, in many ways, is that sustainable finance is a square peg in a round hole.

Broadly speaking, modern finance increasingly encapsulates the old rights v responsibilities debate. The capitalist system we live within often – directly or indirectly or both – offloads ‘costs’ (financial or social) onto society. Societal debate then seeks to resolve that cost debate; albeit within an imperfect system where ‘finance’ (corporates/investors) has significant leverage on political decision-making.

Those who believe finance is part of the problem – and can be part of the solution – are that square peg; defined by the need for dual financial/sustainable success for their endeavours within a remorseless market/profit logic. There are positive stories, but they are niche and failing to dent many of the problems.

Duncan Austin’s writings and the work of Steve Lydenberg and others at the Investment Integration Project are valid attempts to question and answer this problem.

And so we turn to this week’s debate, fired up by a Linked In post by Philippe Zaouati, CEO of Mirova in Paris, and a respected sustainable finance thinker, critiquing the number of investor letters that circulate along the lines of: “We, investors representing XXX trillion of assets, ask you regulator/government to do YYY because of the potential of ZZZ to impact investments made on behalf of ABC.”

In his post, Zauoati said he wouldn’t sign one until investors start acting themselves by, for example, stopping investing against non-climate aligned passive indices.

It’s a fair call: who isn’t fatigued a little by the circulation of investor letters? It does feel like tilting at windmills, although I have to say I’m less bothered by their existence than by the frustration of constantly feeling like governments need pushing to deal with rudimentary ‘externalities’ or crap and costs that need to be discussed politically and cleared up. Let’s be honest, if investors are flagging them, we’re not talking left-field ‘issues-based’ politics here! 

But, of course, we do need more investors to walk the talk, lead from the front, and recognise their role in pushing behavioural change in markets. Indeed, we must challenge them to do so.

Many of the responses to Zaouati’s comments are valid too: I’ve no doubt that these investor letters have helped to spur regulators and governments to action.

I suppose I’m sitting on the fence here in this version of the chicken and the egg.

We are starting to see the things that need to happen for sustainable finance to move forward. 

Of course, we need a gargantuan amount more of it: more political outreach, more sustainable stimulus, more public-facing explanation of what RI is, more elaboration of how sustainable finance can create better answers, more savvy business models, more truly measurable sustainable investment product/action. And we need it all at the same time.

What worries me most, I guess, is the propensity of actors within the sustainable finance field to turn their fire internally, or to despair at lack of progress. I understand it, but we have to fight it. 

I regularly receive correspondence – that I empathise 100% with – that says responsible investment will never achieve its aims (which need defining!) without changing the system. Did we ever think it would be any different? As I concluded in my last piece, right now I think we need a whole lot more work on the why, what and how of ESG, which we will need to debate, refine and instrumentalise together. Many people know this is the challenge.

System change in our times is not revolutionary, but hugely complicated, conflictual and gradual. We need to be impatiently patient; forceful, smart and powerfully persuasive. The square peg will need to break out the round hole to its shape.   

---

Registration is now open for The Responsible Investor Digital Festival: Summer 2020 – June 15th-19th, AKA, the RI DigiFest. 

Free to attend! One week of sustainable finance keynote addresses, high-level plenaries, live Q&As, thematic breakouts and special DigiFest ‘fringe’ events.

Click the link to take a look and sign up.