Part 2, Change management: putting our hearts into responsible investment

Three real-world examples where change management could help remove obstacles to responsible investment.

In this second part of a two-part series of articles on change management, I’ll take a look at three areas – real-world examples – where approaching RI with an awareness of the intangible, ‘non-numerical’ factors that influence organisational and individual behaviour can help remove obstacles to change.

For the first part of the two article series link here

1. Developing a vision
The first step that organisations take when they embark on RI is often to develop a policy. But a good policy needs strong, deep roots. It needs to draw its legitimacy from an organisation’s fundamental understanding of what it is; from its sense of purpose and identity; from its heart. An RI policy that does not flow coherently from an organisation’s overall vision and purpose risks being ineffective because it will not be seen by staff as part of ‘who we really are’.
Why does the organization exist? Who does it exist to serve? How does it serve them? What do members, clients, customers or other key stakeholders expect of it? How does RI relate to investment beliefs – the ‘investment heart’ of the organisation? I have worked with several organisations that have re-energised their approach to RI by asking themselves these questions.
Vision precedes policy. And vision is about emotion as well as rationality.

2. Focusing on the bright spots
The goal of RI is to ‘integrate’ ESG into investment activity. From the outset this creates an impression, and a mindset, that we are ‘injecting’, even forcing something new into the investment process from the outside. We may unintentionally convey the message that portfolio managers and analysts have ‘failed’ to identify ‘material’ issues, and that this is a ‘problem’ we are trying to ‘solve’. It’s not surprising that this may encounter resistance.
‘ESG’ may be viewed as alien, ‘a foreign language’ – even as an attack. At face value the discussion may be rational, focusing on numbers and analysis. But beneath the surface the real energy driving ‘mainstream’ portfolio managers’ or analysts’ response to ESG may flow from strong emotions. These may be stirred up by threatened professional pride, a desire to defend territory and even fear of losing the respect of investment colleagues if the PM or analyst demonstrates an interest in sustainability.
An alternative paradigm is what the change management writers Chip and Dan Heath call ‘focusing on the bright spots’. As the Heaths put it, ‘don’t solve problems, copy success’. In other words, find examples of where things are going well, highlight these, and encourage more behaviour of this kind. In the RI context, this means looking for and making visible ‘ESG’ that is already happening. Many investment processes already address at least some key ESG issues – though they may be couched in the language of structural changes in markets, resilient business models and efficient cost management.Demonstrating that people are already acting on a new organisational priority – even if they did not realise it – sends a positive, supportive message. Encouraging people to do more of what they are already doing is far more motivating than arguing that they should do something they are not currently doing – and which they do not understand or value.
Moreover, this approach can enable people to find a path to behaviours and decisions that are more aligned with their personal values – without prejudicing investment returns or breaching fiduciary obligations.
I have seen at first hand how resistance to ESG and RI can recede, and interest in the underlying issues can be sparked, when the ESG content and value of existing investment processes are recognised and acknowledged.

3. Creating a culture
RI programmes can grind to a halt if they are not sustained by a supportive organisational culture. As Kotter puts it, culture is ‘the norms of behavior and the shared values in a group of people. It’s a set of common feelings about what is of value and how we should act’. Rational processes and structures – e.g. requirements to consider ESG before investment decisions are made, or RI committees – can create the impression of commitment and ‘integration’. Ultimately, however, they cannot compensate for a culture that does not generate feelings that ESG is ‘of value’ and is part of ‘how we should act’.
Mature, confident organisations recognise that a ‘responsible investment culture’ needs regular communication from the top – CEO and CIO – that reinforces the importance the organisation attaches to RI. Cursory references at the bottom of long lists of news items in general emails to staff are not enough. (I have seen situations where even this did not happen.) Ideally senior staff will be visible as RI champions not just internally but externally – and be models for the new culture by consistently applying the new approach in practice, not just in speeches and memos.
In organisations where RI is more deeply embedded, the new RI norms and knowledge are communicated horizontally across the organisation, not just from the top down. Creating opportunities for staff to share ESG insights across teams – e.g. across different asset classes – allows people to learn from peers, reducing the sense that ESG is being imposed by outsiders (ESG specialists) or is ‘just the latest management fad’. Human resources practices – recruitment, performance appraisal and reward systems – nurture a supportive culture by encouraging RI behaviours and skills.
I have seen how a lack of sustained leadership from the top can leave policies, processes and committee structures ineffective, and leave staff with no understanding of the purpose or objectives of responsible investment for the organisation.

Rob Lake is an Independent Responsible Investment Advisor

The following friends and colleagues made very helpful comments on a draft of this article and provided valuable encouragement: Julie Gorte, Danyelle Guyatt, Jake Reynolds, Nick Robins, Willem Schramade and Penny Walker.
If the themes discussed here resonate with you and you would like to share your experience and discuss how we can develop this area further, please get in touch at