Last week I heard a presentation from a consultancy firm who were advising pension funds on their approach to ESG , sustainable and impact investment. This firm had great analytical capabilities, plenty of experience and a talented team. Yet because their recommendations to the pension fund, on how to adapt their responsible/sustainable investment strategy, differed from the recommendations that I would have been inclined to make, I found myself feeling disagreeable, even irritated, and – to my shame – I probably became a bit grumpy! (My apologies to the firm concerned…)
Of course, I know full well that there is more than one way to slice the sustainable cake and different approaches can work equally well. I know that I should feel pleased that pension funds are now beginning to think about their approach to ESG , sustainable and impact investment, asking questions and giving serious thought as to how best to move forward. I also know that I am not always right (although my husband might question that statement!) Yet because I have spent hours, days, months, years thinking about sustainable and impact investment, and how that could fit into a pension fund’s investment strategy, I found it exceptionally hard to put down my own strongly held opinions and listen - with an open mind - to the consultant’s alternative approach.
My sense is that there may well be trustees who have a similar, guttural response when first presented with an impact investment. The idea that an investment can have a dual goal – deliver a financial return AND have a positive impact on society or the environment - without that impacting the financial goals of the investment, goes against some deeply held convictions. After all, we all know that there is “no free lunch” … don’t we? Yet I would encourage any sceptics to leave those convictions at the virtual door, when first listening to a manager presenting their impact fund. The impact investment market is changing rapidly. Since I first became a non-executive director of Resonance, an impact manager, I’ve been amazed at the number of new firms entering this space… you only have to look at the growth in the number of Influencers on the Pensions for Purpose platform to realise that. We now have around 80 firms posting thought leadership content on ESG , sustainable and impact investment, on our platform. Also, a pension fund can be a patient investor, and some of these impact investments have the potential to deliver extremely attractive returns over the longer term.
After my meeting with the consultant, I reflected carefully on what had been said. I realised that perhaps I needed to adapt my thinking. The main point of disagreement had been around whether a pension fund should be considering what other funds were doing, when articulating their investment beliefs, particularly around disinvestment. I had argued that a pension fund’s beliefs should reflect their own, independent views, not influenced by industry trends, campaign groups, or fund manager products. Afterwards, I realised that a complete ‘head in the sand’ attitude might not be the most prudent approach. Taken to its extreme, if all other funds are divesting, and yours is the only one which is not, it could make for some awkward conversations with your members. As a result, I’ve started to contemplate a middle ground: one where industry trends inform (rather than drive) the discussion around investment beliefs. I have shifted my thinking.
At the end of the day, I realised the importance of keeping an open mind to new ideas... not abandoning my deeply held convictions, but being prepared to moderate them if that is the right thing to do.
7th July 2020