ESG? No, its Time to Become Activist Investors

About 20% of all assets are now managed using some form of ESG principles. You wouldn’t know it though.

According to the Economist there were 70 activist campaigns in Europe last year. It feels like there will be more this year. The impact upon the progress of more sustainable business practices is notable.

ESG to the Rescue?

Meanwhile ESG is becoming more mainstream – McKinsey has published a blog claiming it the new normal. The Economist has also just pointed out that those with a millennial mindset are far more interested in ESG investing. There are however many shades of ESG.

At its simplest, a passive filter is applied which excludes a few sectors, whilst allowing investments in a range of companies and sectors that might surprise many. More active strategies introduce different levels of rigour. Then there are themed funds that focus upon specific sectors such as renewable energy. Finally impact investors concentrate on companies that explicitly deliver upon social outcomes as well as financial ones.

As a recent FT article points out though, there is not enough consensus on exactly what ESG is or how to measure it. It seems that all our efforts to fill out the questionnaires for DJSI, CDP and BBFAW et al are making little difference.

Activist Investors March On

Meanwhile, activist investors have cut through the fog with a very clear and simple narrative of margins and share prices. Lets face it, for those of us with pensions and savings, who would not want higher share prices and bigger pension pots.

Well actually not me if it is at the expense of the company and thus society itself. As I have argued before, activist investing is an extreme, that is “changing the circumstances”. The expectations on companies to make money for shareholders is drowning out the need to contribute to society. The important advances that have been made in recent years are under threat.

It seems to me though that the issue is not with activist investors, but the passive ones.

Asset Owners and Asset Managers

Passive funds are starting to have an important impact upon the market. Whilst their popularity is based (largely) on reducing the costs of asset management, they are weakening governance in companies. Index funds have no voice and do not talk to companies. This just amplifies the voice of the activist investors who do.

Asset managers of course do speak to the management of companies, but I wonder if they really speak on behalf of the asset owners. This is especially the case for pension funds.

Twelve years ago I set up my own self managed pension fund and transferred several of my company pension funds into it. I started to manage it and invest in companies that I wanted to invest in, according to my own beliefs. I became activist – putting my money where my mouth is.

Until recently however I was passive when it came to the pension fund managed by my employer. So I have decided to start asking a few questions and become more activist there too. Its worth doing, and sends an important signal.

We can all be Activists

There have been some concerns that ESG managed portfolios do less well than “traditional” assets. Yet there are plenty of studies that now show that assets managed with an ESG filter perform as well as or better.

Assets under management using ESG principles now total US$20-25Tn (trillion). Meanwhile activist hedge funds account for just US$150-200Bn. To give some perspective to this, the top four UK pension funds are valued at more than US$200Bn.

Its not too hard therefore, to see how relatively few pension fund members can easily make an impact, so we can all make a difference.

Its time to all become activist investors. We all need to ask our pension fund managers about their strategies regarding ESG. The more they hear interest, the more they will invest our money based upon these principles.

But we need to go even further. If we are to truly respond to the activist investor narrative, then we need to be activists for the other extreme of the investment spectrum – social businesses and impact investing. This will offer the alternative narrative to help change the circumstances again in the direction of creating shared value – for our pensions and for our society.

We need to ask our asset managers to increase their exposure to “impact investing”. My own self managed pension is seriously “overweight” (as they say) to deliver societal impact.

Glaciers: Going Going…

 

I went hiking this summer above Ferpècle in the Val d’Hérens to look at the Ferpècle and Mont Miné Glaciers. These are situated in grandiose scenery, with the mighty Dent Blanche towering above, yet are also quite easy to get to.

Mont Miné in the centre. The Mont Miné glacier is to the right, the Ferpècle glacier to the left. In 1960 they were joined together in the foreground

Continue reading “Glaciers: Going Going…”

The Context of Targets

Thank you one and all for the comments on “The Problem with Targets”. With comments across LinkedIn, Twitter and on this site, let me respond here and develop the arguments a bit further.


To recap, I believe that there are three problems with targets in the sustainability world. Firstly there are too many. Secondly, the attention is on the setting not the delivery, and finally we need to recognize the differences between complicated and complex problems.

Continue reading “The Context of Targets”

Sustainability’s Inequality Problem

Does sustainability have an inequality problem?

Last week I was on a mini expedition above Zermatt staying in a mountain hut. The conversation got around to the price of staying half way up a mountain. Was it expensive for the experience? Considering the outside toilet, one tap of running water for 30+ people, rather cramped sleeping conditions and CHF10 for a bottle of water, at first glance we thought so.

Then we considered the logistics of getting food and drink up to 2700m and providing a rather good three course meal for everyone. It led us to debate the true cost of providing food, drink and accommodation, whether it be in a hut with a view of the Matterhorn or down in the valley. At which point we became convinced that it wasn’t expensive. But we also concluded that charging a true price for stuff may mean that it is not accessible to everyone. And that was the insight.

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Next week I am moderating a session at a conference where we will talk about organic agriculture and improving livelihoods of small holder farmers. The common link between these is externalities and how much we pay for the the food we consume. The short answer is that food is too cheap…for some. Keeping food cheap for consumers is entrenching poverty for farmers. Meanwhile those who can afford it can buy the higher cost food with the lower pesticide residues etc etc

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In driving sustainability are we reinforcing inequality? Certainly inequality is a barrier to mainstreaming sustainability, but our discussion did not get as far as figuring out the cause-effect relationship. The altitude was getting to us by that stage.

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The pharmaceuticals industry has a way to deal with accessibility, and therefore address inequality, through different pricing models and subsidies to reach those unable to pay the full price. Governments and foundations step in to pay for this and improve accessibility.

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When it comes to sustainability maybe its time to recognise the limitations of the market and voluntary approaches. Perhaps it really is time for a change in the taxation system, to taxes resource use and negative externalities. If there was then a mechanism such as lower labour taxes, or transfer payments to the less well off this would in turn improve the accessibility of more sustainable products. Ex-tax.com your time has come (but I know you know that).

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Until the discussion in the hut about sustainability and inequality, I’d never really thought through the connection between sustainability and inequality. But its obvious. If we want to be sustainable then we need to pay design more inclusive approaches that also deal with inequality.

Green is the Colour?

Sustainability needs a new colour.

Last week I went to the inaugural meeting of GreenBuzz Geneva, and it got me thinking. I met someone lecturing on migration and the various issues associated with it, someone working on improving livelihoods, and plenty of people finding their way balancing the multiplicity of issues from plastics usage and waste management to the role of women in sustainable development initiatives.

Five years ago an event like this would have featured climate change, water, possibly pollution, deforestation – all identifiably “green” (OK the water folks would have been advocating “blue” from their side of the room). Today it’s a bit different. Not only are there a multiplicity of issues that sustainability professionals need to be on top of, but as my speed dating discussions with fellow GreenBuzz first timers illustrated, social issues are in the ascendancy.

So isn’t it about time we came up with a new colour? “Green” doesn’t do our work justice, quite apart from being passé. To their credit the GreenBuzz Geneva organizers have clearly pitched their new group as being about bringing sustainability professionals together, but the use of “Green” implies environment. Luckily it did not put off those more orientated to the social aspects of sustainability.

Is this important?

I think so. Like “Eco”, “Green” gets overused and misused. The same day as the GreenBuzz Geneva event Apple announced that they have raised US$1Bn in a “Green Bond” issue. This was to fund “environmentally focused initiatives” – renewable energy sources, “greener materials to make products”, and conserving resources. Leaving aside what “greener materials” are let’s be clear, at best they are raising money to reduce costs – but that does not make such great headlines. It’s so much better to label this as a “green” initiative. Some would call this “green washing”.

Actually Apple don’t really need to raise money to save money – these kind of investments pay for themselves. The same newspaper article (in the FT) confirms as much – “For Apple, the green bond is the iPhone maker’s latest attempt to bolster its environmental credentials”.

It’s this kind of nonsense that has devalued “Green” and undermined the concept of sustainability. So should we start to call non-green bonds “Brown Bonds”?. Because that’s the implication. Green Bonds for when you want to look good, brown for business as usual. A truly sustainable company would not need to differentiate.

Then the suspicious thing. The FT article points out that Apple has “turned to the debt markets for about US$100bn in recent years to fund its US$300bn capital returns programme”. Meanwhile it has a US$257Bn cash pile, with 90% of this held offshore. It does not wish to repatriate this money, as it would have to pay taxes on it. So is the real reason that Apple is issuing a green bond  to pay shareholder dividends and avoid taxes? Ahem! A functioning society needs companies to pay taxes like everyone else. Suddenly those Green Bonds are tainted, setting back the overall sustainability agenda. Apple’s Green Bond looks surprisingly Brown.

So what colour should we use for sustainability? How about Magenta, signifying harmony and balance?

Swifts & Wolves

I reckon swifts set aside part of their day for fun and games.

I am currently at our base camp in the Alps. In the eaves of the building we have several families of swifts nesting – lying in bed you can hear the young ones chirrupping, and there is much flapping of wings as the parents arrive with food.

During the day the adults are flying randomly around gathering insects, yet in the late afternoon it feels like playtime as we are treated to a display of formation flying, with the swifts flying in twos, and sometimes threes or fours, often only a few inches apart. It’s like a high speed version of tag and from their shrill screams it certainly sounds as if they are enjoying themselves. As base camp is perched on the edge of a cliff, the swifts are flying at eye-line level which gives a 3D feel to the experience of watching them.

Wolves are re-establishing themselves in the Valais.

Over the last few years there have been frequent reports in the newspapers of attacks on sheep and occasionally on cattle. Farmers have been compensated, and the occasional wolf has been shot. But until now it was assumed to be one or two lone wolves coming over from Italy.

Now it’s all got a bit more serious as it has been confirmed that two valleys across from us a wolf pack has established itself. Now the authorities have to take a different approach – it’s about managing the pack so that it lives in harmony with humans and farming. This is a problem in the summer months only – there are clearly enough deer for the wolves to catch to keep them alive in the winter, when farm animals are on the lower pastures.

I spent a bit of time plotting the reported wolf attacks (on farm animals) on the map and was surprised to see that the wolves are traveling large distances and are clearly in the forests all around us as we sit in our base camp in the Valais.

It’s really exciting that this large predator is now part of nature here. It’s quite common to see roe deer and chamois in the forests during my frequent hikes – now I need to be on the lookout for wolves.