Welcome to the big leagues

Can you remember a time before you paid for something in a shop without your debit card? Or a time before you dutifully separated your household waste into compostables, recyclables and everything else?

It wasn’t that long ago, but both actions have become such ingrained habits that it’s hard to think of life without either. You can credit this to the inexorable (and welcome) creep of modernity and progress.

Sustainable investing – and corporate social responsibility – is following the same path. Two decades ago, a decade ago, even five years ago, most people saw responsible investing as a bit of a niche activity. A noble cause but only for a specific type of investor. Even three years ago there was a persistent belief that excluding companies on sustainability grounds meant you had to give something up.  

Today, ESG almost seems fashionable. Companies now see their sustainability credentials as a major selling point, both to customers and investors alike. We’ve discussed the reasons for this several times before: greater awareness of climate change, shifting demographics, technological innovation, and so on. Investors have begun to allocate more of their capital to ESG investments, which has, in part, motivated many companies to get with the times.

Increased media coverage of environmental and social issues may be helping to promote the cause. News of wildfires in Australia and California are helping people to make the link that climate change is a serious issue and that there are consequences for not looking after the planet. And reports of bad corporate behaviour and excessive executive pay are leading to increased pressure for companies to improve the way they are governed and rein in remuneration.

Our only concern is that we end up in a situation where every company rushes to brand itself as ESG without proper measurement or scrutiny. There needs to be targets and reasonable metrics that help define what makes a business ESG-compliant and what does not. A clearly defined global standard for measuring ESG performance will help here, because the current system is disjointed at best and at worst non-existent. The potential for greenwashing remains high when there is more than one way to measure success.

Yes, there are ratings agencies that provide research into companies’ ESG credentials and there are more analysts than ever specialising in this area. This has given us more investment ideas than ever before, but additional support from third-party analysts has not changed the way we conduct our in-house research.

We still look at each company’s fundamentals, Rathbone Greenbank Investments still screens for negative and positive ESG criteria, and we still meet with company management so we can get a true sense of how the organisation operates.

If you had told me five years ago that ESG investing would be where it is today, I would have been optimistic but sceptical. Sustainable investing is my passion, but I never expected it to go mainstream. The more people are thinking and talking about sustainability, the better, and the more we see companies taking action and implementing sustainability processes into their operations, the better. The only thing that’s missing is a common framework for everyone to follow.