Slaying ESG dragons

For skeptical of ESG, the charges of inconsistency, hypocrisy and unintended consequences have not been put to rest. How should the industry respond to such criticisms?

Executive Summary

  • Responsible investing is one of the hottest issues in finance and business. Global assets managed to sustainable principles have risen a quarter in the past two years and more than 1,7001 investment firms, asset owners, and service providers are signatories to the principles for responsible investment, an initiative supported by the United Nations. From a fringe topic a decade ago, the mainstream beckons.
  • But skeptics remain. Often this is due to a lack of exposure or understanding. Others are put off for legitimate and sophisticated reasons. Addressing their arguments is crucial if responsible investing is to endure. Any movement that does not embrace criticism loses credibility. More important, there is money on the table. More than $60tn1 in assets is moving to incorporate environment, society, and governance factors. That means roughly half of all the managed money in the world is still to be convinced.

  • This report summarises the three main criticisms of ESG and suggests the best responses to each of these “dragons”. It is based on a keynote speech given at the Deutsche Asset Management ESG Summit in Berlin in September 2017 and an article that appeared in the Financial Times the following month entitled, “How to win over the ethical-investment sceptics”.

  • The first charge levelled at asset managers that are embracing ESG is inconsistency – that there are too many grey areas and conflicts of logic. Hypocrisy is the second problem the industry must address if it is to look companies and clients in the eye. Finally, an approach to dealing with the real issue of unintended consequences is explored.

  • To simplify, slaying the three dragons requires a combination of serious research, data analysis and ingenuity with humility, open-mindedness and best practice behaviour. Each is described in more detail in this report. Key to persuading the sceptics to engage is for responsible investors to admit they do not have all the answers. The answers offered here should be seen as a starting point from which much more work is required.

  • Click here to read the whole article.

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