Change management: putting our hearts into responsible investment, Part 1

Responsible investment is about change management; so why don’t we talk about it that way?

Anyone working in responsible investment (RI) knows that it is an exercise in change management: changing investment organisations so that they give attention to environmental and social issues in a way they did not previously do.
Everyone I have put this point to has said, ‘Yes of course, Rob. We all know that’. So if it’s so obvious, why do we so seldom talk in these terms about what we do? A Google search for ‘organisational change management’ returns 27.7 million hits. A search for ‘responsible investment and change management’ returns none. Why is that? And why might seeing responsible investment more formally through the lens of change management help us do a better job?
There’s a particular recurrent theme in the change management world that resonates strongly with my own experience both in full-time roles in investment organisations and as a consultant. That theme is the importance of people and the ‘soft stuff’ of why individuals and organisations behave in the way they do, and why they often resist change. As the leading Harvard Business School change management professor John Kotter puts it: ‘… the central issue is never strategy, structure, culture or systems. All those elements, and others, are important. But the core of the matter is always about changing the behavior of people, and behavior change happens in highly successful situations mostly by speaking to people’s feelings. This is true even in organisations that are very focused on analysis and quantitative measurement, even among people who think of themselves as smart in the MBA sense. In highly successful change efforts, people find ways to help others see the problems or solutions in ways that influence emotions, not just thought. [Emphasis added.]’
In the RI world we spend a lot of time looking for conclusive evidence and arguments that ESG issues are financially significant. Is X a material risk? Will Y add alpha? Does Z affect my asset allocation? We also devote a lot of attention to policies, systems, procedures and reporting – the ‘engineering’ of RI.
These dimensions are important. However, all too often we forget – or do not allow ourselves to remember – that the roots of many ESG issues lie in the domains of values and ethics. Some sustainability issues have implications for companies because of physical factors – storms, floods, sea level rise, water scarcity.In many cases, however, business implications arise because people care – as consumers who make purchasing decisions; voters whose opinions prompt action by governments; members of society who collectively create norms of corporate behaviour. Investment institutions are affected by these external forces in the shape of members’, customers’ and society’s expectations. And people working for investment institutions have personal values and ethical standards that differ little from those of the societies of which they are part. Like most of us, they feel uncomfortable if they know they are doing things that are inconsistent with their values. Perhaps we should spend more time thinking about how to win over hearts, not just spreadsheets and business processes?
A key insight of change management is that ‘people change what they do less because they are given analysis that shifts their thinking than because they are shown a truth that influences their feelings’. This may be difficult to believe in investment organisations, where numbers supposedly reign supreme. And of course it’s true that numbers are important – along with systems, processes and policies. But investors are people too. As responsible investment change agents we need to get the balance right between the head and the heart in the way we work. I have heard many stories from RI people who suffer deeply and bitterly the emotional stress of being repeatedly dismissed by colleagues who reject ‘rational’ arguments based on the conventional repertoire of ‘materiality’, ‘risk’ and the ‘business case’. Equally, I know many RI people who are able skilfully to blend a range of styles and techniques – from numbers-based and technocratic to human and relationship-orientated – to achieve their goals. My very strong sense is that (most) RI people know all this instinctively, and my direct experience is that they acknowledge it in private conversations. Yet discussing it explicitly is still considered inappropriate – even dangerous. My contention here is that by acknowledging it more openly, sharing experience and learning lessons framed in this way, we can become more effective at what we do.
And if we are truly serious about bringing sustainability to financial markets, that can only be a good thing.

In the second part of this article tomorrow, 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.

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