Rob Lake: Values in investment: feel the fear and do it anyway

The power of words in saying what we are actually doing in RI.

Words are powerful things. They reflect and shape thought. They inspire passions – and fears. The world of ‘responsible investment’ (RI) has quite consciously distanced itself from the words ‘ethics’, ‘morals’ or ‘values’ – fearful that ‘mainstream’ investors will dismiss it out of hand if it uses this language, or if it is suspected of having these motivations. The purpose of RI has been defined – at least by most members of the RI community – as managing financial risk better and perhaps enhancing financial returns, not generating ‘moral’ or ‘ethical’ returns. This is reflected in the fact that 55% of PRI members say RI is just ESG risk and is not about achieving objectives for society.
A strange state of affairs, given that society clearly expects finance and investment to serve its objectives and needs, that it sees the financial crisis as a catastrophic failure of ethics, and that business ethics is central to current debates about financial conduct and regulation.
Ironically, perhaps, people outside the RI world regularly describe RI as ‘ethical’. A recent full-page Financial Times article about the financial performance of ESG indices, renewable energy and clean technology carried the headline ‘The ethical investment boom’. Similarly, Swiss Re’s decision to switch the whole of its $130 billion in liquid assets into ESG indices was widely reported as a move into ‘ethical’ indices
The unspoken truth
This is of course that the real human beings in the responsible investment movement are in fact driven by their personal ethics, morals and values – and that their organisations (sometimes) also have values that extend beyond purely financial concerns. And an equally important truth is that these human beings and organisations also recognize the need for decisions andactions by investment institutions to be justifiable in financial terms. Psychologists distinguish between ‘intrinsic’ and ‘extrinsic’ motivations and values. Intrinsic values are those such as helpfulness, equality and protection of nature. We find acting in line with these values rewarding in its own right. Extrinsic values include social status, wealth and control or authority over people. Rewards for acting out these extrinsic values are bestowed by others, from outside ourselves. We all hold all these values. Each of us has a different balance or combination of them, and expresses them to different extents in different situations. Research in the UK found that 74% of people in a representative sample place more importance on intrinsic than extrinsic values. As a matter of practical reality we are now seeing more and more evidence that investors are acting on the basis of ‘intrinsic’ values, not just of strictly financial calculations:

  • The Dutch healthcare pension fund PFZW explicitly acknowledges a responsibility to contribute to a sustainable world.

And the rush by (some) investors to embrace the Sustainable Development Goals illustrates how powerfully motivating – for organisations and individuals – aligning what we do at work with the long-term interests of society and Planet Earth can be. This brings these mainstream investors close in their actions, and indeed some of their words, to the vibrant sustainable (or green) finance and impact investing communities, which consciously and confidently espouse the pursuit of positive environmental and social benefits from investment. The EU’s High-Level Expert Group on Sustainable Finance, for its part, calls for a financial system that ‘stimulat[es] job creation, investment and prosperity in Europe, as well as making the transition to a sustainable model of development’. Clearly these are objectives framed in terms of the needs of society as a whole, not just of financial returns for investors.
Meanwhile, and perhaps ironically, the mainstream investment world now seems to be more comfortable with the language of values than ‘responsible’ investors. In its report on The Future State of the Investment Profession, the CFA Institute highlights the importance of values in investment organizations if the industry is to regain the trust of society. Citing its own research showing that only 11% of investment leaders describe the impact of the investment industry as very positive for society today, it argues that the investment management industry needs to show it can do more good for society.
So the confusing situation is that the RI world says it is not driven by values, while in reality ‘intrinsic’ values are an important source of energy and creativity in what it does. The rest of the world often just assumes that RI is in fact about ethics and values.‘Sustainable’ and ‘impact’ investors openly espouse non-financial goals – though they too often hesitate to invoke ‘values’. And ‘mainstream’ investors are starting to say values are important. In short, we have a problem with words. Why is this problem a problem? The reality is that investors’ actions are being driven by intrinsic values even if this is not explicitly acknowledged. If the actions are leading to positive impacts for the environment and society – as well as required financial returns for pension funds, individuals etc. – does the confusion over words matter?
I believe it does. As I said earlier, words reflect and shape thought and actions. The confusion over words – and in particular some investors’ reticence and even fear when it comes to values – implies that our thinking is confused and our actions are not as effective as they could be. Importantly, this reticence and fear also lead to personal frustrations for many people working in investment who do not feel able openly to acknowledge their values, and experience an uncomfortable gap between their own values and those of their organisation and the wider investment industry. These people can be found at every level in organisations, at every stage in their career, and in many different roles – with and without words and terms such as ‘responsible’, ‘ESG’ and ‘chief’ in their job title.
We know that the sustainability crisis is acute and worsening. We know that the economic prize from a successful low-carbon transition could be enormous. We know that a crisis of retirement incomes is looming in many countries. We know that the finance sector is central to each of these challenges. To meet them successfully, investment and finance need to be clear about their purpose and to muster all their creativity, innovation and energy. This in turn means that the people within investment and finance need to be clear about their purpose and to be able to find a stronger alignment between their values and their work.
As Mimmi Kheddache Jendeby of the State Street Center for Applied Research says, ‘We spend too little energy building a strong connection to our purpose. In a 2016 survey of finance

professionals conducted by the StateStreet Center for Applied Research and the CFA Institute, a mere 28% of respondents said that they work in the investment management industry to help end clients achieve their long-term financial goals. We don’t discuss our values and how they should influence our behaviour as much as we should.’
Taking the plunge
It’s true of course that being open about our values when we work in investment or finance can be scary. Values are linked to our inner, emotional landscape. They have their roots in our family background and life experience, or in spiritual or religious realms. Expressing our values can leave us vulnerable to critique or judgment from others, on things that really matter to us. All of this tends to make openness about values taboo in the outer, professional world. But perhaps our fears are not justified. Psychologists have found that people consistently underestimate the extent to which other people share their concern about the environment and the community. I have experienced numerous situations in which ‘mainstream’ investors have found ways to reflect their concern for sustainability in their work. Research “shows” that asking people who have a strong focus on extrinsic values such as wealth and status to reflect on intrinsic values such as caring and compassion can make them more likely to voice concerns about equality and to express a feeling of responsibility to others.On the other hand, studies reveal that continually focusing on extrinsic values can reduce people’s sensitivity to pro-social values. Perhaps relentlessly invoking ‘materiality’, ‘risk’ and the ‘business case’ – consciously cultivating the extrinsic values in others – erodes the very soil in which the seeds of greater concern for the environment and society might grow and flourish. A more balanced approach that openly addresses their intrinsic values too might be more fruitful. Who knows what might be possible if investment and finance openly acknowledge the intrinsic values of caring for others and for the environment, support people to express them and reward them for acting on them (at the same time as deploying their ‘conventional’ professional skills). Bolder action on climate change? More investment that regenerates the real economy? Less lending to environmentally and socially damaging activities? Products and fees that genuinely serve clients better?
Organisational cultures that generate greater fulfilment and loyalty by enabling people to act in line with what they really believe is important?
It’s time to make values visible and permissible in investment and finance. To adapt the title of a well-known personal development book from the 1980s, where values are concerned, it’s time for investors to feel the fear and do it anyway.

Rob Lake is an independent responsible investment advisor and executive coach He is the founder of Authentic Investor
The next Authentic Investor retreats are being held near London in late October and near New York in late November. Details can be found on the Authentic Investor website.

Vicki Bakhshi, Kate Cacciatore, Emily Chew, Bonny Landers and Nick Robins made valuable comments on a draft of this article.