Why do we not have a single way of measuring how responsibly our pension funds are managed?
I asked myself this question yesterday as I listened to fund managers outboasting each other about their green credentials. It seems that these fund managers – who used to laugh at hippy-dippy ideas like ESG, were secretly working on their great masterplan to save the planet all along.
There is a general revisionism going on in the fund management industry summed up by the phrase “green is the new active”. It is as if Swampy had been promoted to the boardroom.
It is hard not to be sceptical. I am sceptical when I ask these managers why they dismiss Morningstar, which has launched a fund rating system that tests the green credentials of funds,
I’m not able to name names – because of the Chatham House Rule. But I can say that the green managers I spoke to at yesterday’s DG pension summit were anything but amenable to being scrutinised by rating agencies and quite publicly dismissed the rating agencies in favour of their proprietary research (which of course could not be shared).
Are we competing to improve corporate behaviour?
My scepticism is bedded in a view that if fund managers really wanted to see ESG embedded into corporate behaviour, they would collaborate and share information, rather than competing and hiding behind intellectual firewalls.
Of course this is not just the case with fund managers, I see the same happening in academia and it is equally unedifying there.
We are not competing with each other, we should be finding ways to work better through sharing good ideas- which is why I go to conferences.
But when I hear presentations which try to convince me that fund managers are looking to deliver improvements in their 3 year performance targets through the adoption of ESG analytics in their investment process, I ask is this the right measure?
If we are to have patient capital, we must also have patience about performance. Woodford cast a long shadow over much of the debate, not least because much of the ESG investment goes into illiquids which cannot be judged on short-term performance targets.
When those managers who were telling us that by using them , we would be buying into their well-developed ESG research capabilities were not only claiming that this would boost short-term returns but were denying the value of external analytics of stocks and funds which could test their claims.
It strikes me that this cauldron of ESG-mania, isn’t giving us a chance to see what’s in the brew and whether that brew really is sustainable.
And as for the consumer?
I fear that the last people to be given a genuine view of what is going on on the ESG front, will be the people who most want and need to know.
If there is reluctance among these new converts to sustainability to be measured by external agencies then what chance do ordinary investors have of telling the truly responsible managers from the green-washers?
I am far from convinced that green is the new active and that the fund management industry has suddenly converted itself to sustainable practices. But I would be a lot less sceptical, if a proper system of fund assessment for responsible investments was accepted by the fund management community.
Consumers need measures they can rely on, instead of dismissing the measures that the rating agencies are creating, fund managers should embrace them.
Competition is one thing, collaboration can and should co-exist with competition. Fund managers should be prepared to submit their work to the scrutiny of rating agencies so that we can make meaningful choices between the truly green and the green-wash.