I don’t know Paris Jordan, hadn’t heard of her before I read this..
One asset manager told me their firm had just put ESG into its investment process. Brilliant. Glad to hear it. I asked how it had changed fund outcomes. I didn’t get an answer, because it hadn’t. They hadn’t really adopted it into a process. Investors see the sustainability reports, they see the marketing, and unfortunately it does take people like us to pull that back.
The point is very well made. If ESG strategies are to mean anything , they must be known by their fruit, not good intentions.
That is why I support the intention of the DWP to require trustees to report on the TCFD metrics of their portfolios. If these metrics aren’t changing, then the funds aren’t adopting sustainability strategies into their portfolios. Paris Jordan’s test is even blunter, if the fund returns (nominal and risk adjusted) aren’t impacted by adopting ESG into its investment process, then the managers are just adept at marketing.
That it takes a few years for the impact of the change to feed through suggests that there is first mover advantage, those who were taking action on ESG in 2015 , can now show us the results. I have some money invested in L&G Future World and some invested in L&G’s Global 50;50 index tracker. I’m nearly at the five year mark, my internal rate of return for Future World has delivered me the higher return for a comparable asset allocation. I have benefited financially from investing in Future World, I know the quantum of the advantage in pounds and shillings and pence when I compare my fund value with the value of investment in the fund that simply tracked the index.
Reporting on funds with respect to a benchmark is the only way that a retail investor has a chance of understanding whether a manager is doing his or her job – de-risking a portfolio. It is no good my manager (Martin Deutz) managing Future World if it doesn’t improve my returns, I will assume he is simply following the herd and getting trodden on. I want my manager to be managing with an eye to twenty years in the future because I am intending to have my money invested that period of time.
The Dead Horse
The dead horse is Morgan. One of Ireland’s top trainers is in the process of seeing his business disintegrate in front of him because a photo has been circulated on social media seeing him grinning and gesticulating while sitting on Morgan – only Morgan’s dead. Morgan is stretched out on the gallops after suffering a heart attack.
— Independent Sport (@IndoSport) March 3, 2021
The horse racing community has decided that despite this photo being four years old, it will not tolerate Elliot’s horses on British soil, owners have taken their horses away from him and his star horse Tiger Roll is unlikely to run in the Grand National as a horse he trains. With Cheltenham around the corner, that photo has changed markets.
Another photo has now come to light of a jockey, fooling around on another horse that was dead. Rob James may never recover his career.
Practicing what we preach
The pensions industry cannot tolerate association with bad practice. When it comes across gross violations of the principles that underpin ESG it cannot walk by on the other side of the road, any more than the horse racing industry could brush off the photos of trainers and jockeys messing with dead horses.
Two years ago , the Pensions Management Institute chose to use the Dorchester for its annual dinner. The dinner went ahead at the very time when the world was in uproar that the Dorchester’s owner , the Sultan of Brunei, was about to have some of his citizens stoned to death for being gay.
The PMI went ahead with the meal, despite protests from people in the pensions industry – including me – that the Dorchester was the wrong venue at the wrong time.
In the end the campaign to boycott hotels and shame the Sultan paid off. But to the great shame of the PMI and pensions in general, the meal went ahead.
Our voices are louder than you think. Keep them raised. https://t.co/7kgoBsjrYV
— Ellen DeGeneres (@TheEllenShow) May 6, 2019
Virtue signaling is ok – if it’s backed up by action,
I am sure that five years ago, Gordon Elliott thought letting someone photograph him using a dead horse as a bench was of no consequence. He does not think this now.
I am sure the PMI thought that ignoring the stoning of homosexuals in Brunei was acceptable back in 2019, I hope they would behave differently today.
The activism of those calling for an end to the abuse of power, the planet and of people is heard from the protests of Extinction Rebellion to the calm reasoning of Mark Carney but they make for change. The Make My Money Matter movement, may not have the precision of the DWP’s push for TCFD reporting, but without the groundswell of populism within and without pensions, it would not have got through the reading of the Pension Schemes Bill.
Much of what is going on in fund management houses and indeed pension management is “virtue signaling” and I can understand why some take arms against it, but without noise, genuine action won’t get taken. For me, the PMI is a lesser institution for letting the dinner go ahead at the Dorchester, I can not take it seriously when it speaks on ESG anymore than I can take Gordon Elliott seriously if he talks of animal welfare.
By your fruits…
Eventually the good will out. My Future World fund is bearing me fruit, firms from the mighty LGIM to Impax and on to Pension Bee, are showing that by doing the right thing, they can make their client’s money matter in a way that improves their financial prospects.
Claims from those who are adopting ESG into their processes are to be welcomed, the more the better. But simply saying it – means nothing – the DWP are demanding that trustees report on the impact of the management through TCFD and challenge trustees to target their capacity to get full data. Many trustees will want more ambitious targets and that is even better. These measures precurse the reporting on outcomes that may take years to come through. But ultimately, we need to be clear about the goal of ESG, it is to improve the outcomes of investing by aligning investments to environmental , social and governmental standards of best practice.
There can be no more fooling on dead horses, no more boycott-busting black-tie dinners. This is deadly serious stuff, whether our concern is animal welfare, the right to be gay or the sustainability of the planet.