You may recently have seen the following article http://nacla.org/news/2017/01/06/how-tiaa-funds-environmental-disaster-latin-america, or at least seen it covered elsewhere.
It is certainly a catchy title.
Perhaps not one that investment institutions would seek to be part of but, nonetheless, that is how it turned out.
So how did so many serious and ‘sustainable’ (groan) investment institutions become committed to a strategy approach that generated the one thing they all claim to loathe and fear the most.
That is, appearing on the front page of the paper for the ‘wrong reasons’ and not in the financial section for the ‘right reasons’.
Readers of AE material will be familiar with our covering of ‘greenwash’ and the whole subject of accountability, independent evaluation and measurability when it comes to environmental and indeed institutional credibility.
Everyone on planet earth is prepared to sign up to non-binding, unmeasurable statements of their commitment to sustainability (not that word again) and environment. In our view it takes more. Measurable, binding and independent evaluation are necessary aspects of a serious approach to ESG and responsible investing.
So if you are an investment organisation how do you avoid getting caught up as a participant in the types of undesirable practice described so clearly in the linked article?
- Small note that this is probably not as bad as having your land stolen from you.
Strategy of the Sheep
Two things are required 1) education (ecological, impact) 2) education that has been applied – dirt under the fingernails, been there done it seen it, composted the t-shirt etc. and 3) intent, i.e. you actually have to do something and not just talk and/or write about it or put it in a glossy ESG report.
In practice, 1 is required before moving on to 2.
Investment institutions generally don’t have time to become suitably educated themselves so they need to access that existing knowledge and bring it within their framework.
The challenge is to find the knowledge. A combination of ecological and investment knowledge is rare.
If institutions are serious in seeking to understand issues of social and ecological impact and to align themselves with managers able to execute on that basis they need to commit and embed it in their strategy and approach. Glossy brochures liberally using the word ‘sustainable’ are insufficient and indeed there are those who would suggest that was indicative of the problem rather than part of the solution. The less than satisfactory situation the above article covers is in fact a demonstration of the flaws in viewing ESG as a nice to have vs an essential. It also creates the environment for such conspicuous public failure.
The benefits of taking a more active and conscious approach are seen in terms of improved resilience, reputation enhancement and performance (superior knowledge supports superior performance).
Authenticity is not a marketing tactic it is a reflection of institutional character and capability.
Doing it right and doing it well, also means less risk of having to walk through a Greenpeace or Friends of the Earth gathering outside your office as a result of something you have invested in.
Avoiding this kind of situation is easy:
- ensure you have the knowledge of how to (if you don’t there are people who do); and
- the genuine desire (and strength) to take action.