Investment managers should enrich their clients and society at the same time
Genuine long-term investment has to be sustainable, without being taken in by green, cuddly platitudes, says Matt Strachan
The distressing images of ocean plastic in the BBC’S Blue Planet II have become something of a call-to-arms for environmental action. Millennials are quite rightly asking ‘what are we doing to the planet?’ and if they weren’t already, investment managers are being forced to reflect on the wider impact of the companies they invest in on behalf of clients.
In an odd way I seek comfort from this. For those of us old enough to be baby boomers, there is a level of familiarity with the outrage being expressed and some of the proposals being put forward (and yes, I do remember returning the Tizer bottle back to the shop to get a couple of pence). Back in the 60s and 70s similar horror was voiced over the damage being wrought by unfettered waste disposal. Heavy metal disposal poisoned lakes, rivers and seas, killing entire ecosystems. Oil spills were commonplace and caused some of the most arresting images: who can remember the Torrey Canyon? Legislation was steadily introduced to prevent this damage. Most of the world’s crude carriers are now double-hulled, release of mercury (particularly from mining) into the environment has fallen significantly and lead is no longer used in most petrol and paint.
Innovation, technology and efficiency gains have also helped and air and water quality in developed nations is significantly better than it was at its worst. However, some things have got worse rather than better. From a baby boomer’s perspective, society has become more indulgent and more wasteful in a disposable world. The angst over the damage being caused by plastic waste seems to have taken time to gestate. But this is no different to previous episodes of environmental action. What is different is now we have social media. Back in the day we had to rely on Ralph Nader, small action groups and committed journalists to raise a voice and force action; and it took time. Today an injustice can become a call-to-arms within hours.
The immediacy and borderless nature of social media means it is nigh on impossible to sweep issues under the carpet any more, a key reason why China has stopped accepting mixed waste from the rest of the world. But social media is also unfiltered and sometimes the urge to be first overwhelms the capacity for a considered view; something that is difficult to articulate in a tweet! There is also the danger of creating echo chambers, where comfort and reward are gained from attention and self-reinforcing opinion. This increases the risks of poorly considered action, inappropriate targets and damaging legislation. In seeking to do good the risk of unintended consequences can be high. As the saying goes, the road to hell is paved with good intentions.
So, what should an investor do? Sovereign Wealth funds, the ultimate long-term investors, have long taken a lead in embedding an environmental, social and governance (ESG) parse across their investments. They have the presence and influence to put pressure on companies to improve standards, change practices and in some cases come out of certain businesses. However, this is a ‘one size fits all’ outcome and may not tally with an individual’s moral compass. Indeed, if the individual investor has a strong stance on certain issues and wishes this to be reflected in their investments, then they will need a bespoke approach clearly articulated. This though does not abdicate an investment manager from taking an ESG stance.
The truth is that genuine long-term investment has to be sustainable. No long-term investment can genuinely be made without considering if the company is exposed, wittingly or unwittingly, to ESG issues that threat- en the sustainability of the business and company. An investment manager also needs to be alert to‘ green wash ’. just as there is an analytical and fiduciary duty not to rush into any old investment promise without proper consideration, there is a duty not to accept a green stamp and cuddly platitudes without question. The recent
issues over personal data culled from social media and its use are a classic example of technical legality riding roughshod over morality.
Investment should fulfil the role of Adam Smith’s ‘hidden hand’. It should direct capital to its most productive use and it should not be short term. It should support companies that will make the greatest contribution to society as they will likely be the ones that generate the best returns. Being a good corporate citizen is aligned with sustainability. Ultimately the role of an investment manager is to enrich their clients and in doing so, society. Matt Strachan, Chief Investment Officer, Thorntons Investments