James Corah on the future of the sustainable finance industry.

Neil Farrell from Farrell Associates | Certified B Corp? sits down with James Corah from CCLA Investment Management to talk about the future of sustainable finance, how to find your 'why', and how we should all pull together in tough times.

James has been within CCLA Investment Management for 14 years, and over that time has seen the industry develop. In this redacted wide-ranging interview, Neil Farrell and James explore the purpose of ESG within financial services, the ongoing challenges, people who make the industry what it is and his hopes for the future.

Neil Farrell:

‘There's been a lot of negative press and political pushback but you're looking forward thinking about the ‘why’ of the industry and what we will need to do collectively to take it forward […] to 'ESG 2.0’’

James Corah:

‘I think it's so fun to stop and take a look back and I enjoyed your reference to ESG 2..0 because I'm not sure what number we're on now. We're on 3, 4, or 5. It feels like the industry has consistently been reinventing itself, sometimes in a good way, sometimes in a bad way. And of course, we've always got really hung up on semantics. So […] what does sustainable, responsible values based investment really mean? I guess the word that matters most is purpose. Right now, it feels like our purpose is being stretched quite considerably. We sit at an interesting crossroads, where our industry […] has gone from a niche to the darling of the whole investment sector, and back again, as we face push backs’.

Purpose is one of the key challenges our industry faces; we all agree that ESG is good for the planet, but as James outlines, there are so many competing factors, challenging the clarity of that mission, particularly with political and economic pushback stemming from the US:

James:

‘I guess for me, it feels like now's the time for all of us […] to remember what it is that we're meant to be achieving, and that is recognizing that fundamentally, investment markets are one of the best drivers that we have to build a more sustainable future. […] So irrespective whether there's pushback or negative regulation meaningful, change-orientated sustainable investment is the right thing for our clients. Addressing systemic risks is exercising our fiduciary duty, we need to do everything we possibly can do to continue that purpose of driving change’.

Neil:

‘There's so much noise as there is in society as a whole; ultimately […] we need to put our energy in the right places and that debates been lost. People have moved away from wanting to move capital towards these big trends. What is the actual impact that that's going to have on things like climate change, and other societal issues?’

James:

‘The thing that dragged me into this space is this idea of looking at your purpose; how can I best make the changes in society and the environment that we need to see happen. For me, and investment markets are one of the key levers, when you look through the chain of control. Technically, the people who own the corporations that we're investing in should be at the top and therefore have the opportunity to exert influence’.

Engagement is important to James; how organisations, and those people leading them who have the power to bring to bear their influence as active owners

James:

‘As an industry I think we’ve spent far too long focusing on what should be in portfolios. But – at least in listed equity markets – that shouldn’t be the end of what we do. Whilst it comes as second nature to many parts of the investment chain, other parts – particularly the wealth industry – don’t yet understand the importance of engagement. So if a client asks about a portfolio holding, maybe we can also try […] explaining how engagement is an opportunity to actually change company's behavior, and the potential to use public policy advocacy as a way to change regulation, which affects every single company.’

James believes people in the industry bear some of the responsibility to drive change and distill the focus on purpose within ESG.

James:

‘[…] We all need to be a little bit more explicit in terms of what the theory of change that it is that we're using. People in our sector need to be quite clear in terms of what is it that they are trying to achieve. How did they fit with this purpose? What are those many theories of change that we can use the investment sector to resonate for them? So, in addition to what's the why for sustainable finance, there's also the what's the Why? Why am I in the sector? Right now, again, it's quite a demoralizing place to be. If people can have right at the front of their mind ‘why am I doing this?’ It might help us get through this this period’.

Neil:

‘[…] You’ve been through a few of these cycles now. How does this compare to pre boom; 2018 / 2019 is it a similar feeling?’

James:

‘I joined in the sector at the time when […] the people I was learning from had to fight tooth and nail just to even get a foothold in this industry. They were there at the beginning and did the hard work making something from nothing. And so when you reflect back on that struggle and the struggles that we have right now, we have to remember those people who really got the cart moving in the first place, and what it is that they care about, which is how do we make the sector push forward. And it feels to me like we're going through a tough period, we don’t have it that bad. Like everything in life, the tough times come from time to time. We are still in a much better place than we have been.

?

So for the first five or six years that I was in the industry, there was a definite sense from many people of ‘why do these responsible/sustainable investment teams exist? What is the purpose? Why are you here? You're just a cost center.’ Despite everything, there is much more acceptance that sustainability is a legitimate, if not foundational, part of the investment industry

These economic phases, according to James whilst painful at the time, do also have a useful purpose for redefining the mission, and strengthening ESG professionals skills and resilience.

James:

‘[…] This period made people really battle hardened, I always had it relatively easy given who I worked for, but everyone in the sector was really used to defending what it is that they do and their purpose. not completely […] going to war but every day fighting for what they believed in. Then we had this period where we began to get everything that we wanted. All of a sudden sustainable investment was the flavour of the investment industry. Everyone wanted to talk about what great work they were doing. Jobs were plentiful as everyone was coming into the industry. I've got questions as to how useful that that boom time actually was but it broke new ground for us as a movement. Now we're in a period of retrenchment, again, where it feels like we absolutely have to start justifying what it is that we're doing because there are hostile factors out there’.

Neil:

‘What does that look like going forward then? You've read my LinkedIn posts and I'm pretty convinced that everything started to get better last summer, but it's baby steps. I think it will just continue to improve barring some sort of massive geopolitical event or something like that. what does the new landscape look like?’

James:

‘I'm very optimistic so I share your view that things are beginning to turn again. It's Spring, which is a great metaphor for actually where our industry is, but I think […] we have to learn some lessons. And I do think that some elements of the pushback are fair. A lot of what the sector has done has been very narrative heavy. It's been very investment style heavy and not been particularly focused on what we know underlying clients really want which is driving that social environmental change that they care about. In the UK, the FCA did research as part of SDR that said that 81% of adults wanted to make money and make a difference. We've lost track of that ‘make a difference point’. It’s not ‘address financially material ESG issues, or deliver a low carbon footprint through a portfolio of ESG opportunities. It is simply, make a difference. That, alongside delivering returns, has to be the purpose of our sector. So I do think, […] to use the gardening metaphor, elements of pruning and trimming and getting back to the core is what's going to enable us to flourish moving forwards. So how, where do we go from here? I do think there are some headwinds that are going to continue to blow and talking to colleagues who work in more diversified asset management companies with a bigger geographical base, it is those jobs that are much harder now and they'll continue to be much harder. If the sector retrenches, then I think we have the ability to grow again, in a way that builds our industry back to being something that's truly meaningful.’

Neil:

‘It looks different in terms of product or team structures? Or is there a new kind of role that you can see emerging within the Responsible Investment world?’

James:

‘I think to some extent, in this period where classic thematic sustainability funds have undergone a little bit of volatility, which everyone should expect. There are some really great funds out there, and I don’t want to start a ‘green on green’ war but I do think that people are looking at a little bit more broadly in terms of what ESG or sustainable investing actually is. I'm on the record, quite considerably, of saying that an engagement approach is one of the ways that we genuinely can drive a lot of change without sacrificing portfolio construction too much.

If you want to use engagement as an approach to drive change, you don’t want to invest in those businesses that don't need to change. It's like a community foundation. You don't give the rich areas your grants but the areas that need to improve. So that whole focus on engagement is going to be important. What comes next is always going to be people led. If we can make sure that the people in our sector are able to express themselves, to be themselves and bring their mission to work a little bit more, then actually we can build something that is so much more meaningful than what's gone before. It's a real opportunity’.

Neil:

‘You’ve talked in the past to me about helping other people through this period. We set up a sustainable finance mentorship scheme which has some great feedback, but what do you think everybody needs to do?’

James:

‘Simply, ?‘get through it, it's tough right now’. But during ‘winter’ we need to regenerate, we need to understand the importance of planning and begin to go again. That is really important, as I remain excited. The things that I care quite strongly about right now are ‘know your why’ (why is it that you are in the sector) and ‘what is it you're trying to achieve?’ […] mentoring and peer support is more important than ever.’

Neil:

‘It's super important to network and that's the great thing that I love about our industry. It is so well networked, and people support each other and there's no major firm rivalry. Is there anything more you think can be done more in that space?’

James:

‘[…] In the tough times, the best thing that you can do is acknowledge the wins that you have. And so, in addition to ‘your why’, when you've achieved something that's helping you deliver that, let's find a way as an industry to celebrate it together. It might not be throwing out your company's annual report the way it might have been a few years ago, but it still matters. So, let's find a way of celebrating. As an industry we are quite good at supporting each other. I've been negative, of course; about how tough it is right now, about regulation. I'm arguing about words and scheme particulars, blah, blah, blah, blah, blah. We're not sitting down and sharing the energy of what's our latest win. We need to get back to making sure that on every formal or informal agenda, we take a step back and say ‘actually, you know what, times might be tough right now, but we're still achieving a lot’.

Neil:

‘That's a good call to arms. And what other predictions or views or oversights, do you have that you'd want to share with people?’

James:

‘I guess that is just keep going. Keep going. The prize is quite substantial here. Even though it might feel like the anti ESG stuff has set us back, you've got to remember that Rome wasn't built in a day. Everything moves two steps forward, one step back, and where we are today, which might feel tougher than we were four years ago, is definitely better than where we were six years ago. The trend line is actually still positive. So let's just keep going. Remember that we're not here to build an investment style for the sake of building a style. We're not here to develop a terminology that makes us all feel great and clever. We are genuinely here to make sure that our sector is delivering the outcomes the world needs to see. And that for me has to be at the core of everything we all do.’

Neil:

‘I think what you're brilliant at is blocking out the noise, and just focusing on the positives of what you and your firm are doing’.

James:

‘I recognize that I'm in quite a luxury part of the market and look at the market from quite a positive position. Everyone that I speak to, and from reading your posts, (you get the barometer of the industry so well), the majority of people ask the question ‘how do I get to a firm that actually believes it?’ So, I'm very lucky in that I do work for a firm that does believe it and gives me carte blanche to go out and do what I think is right, which is an incredibly privileged position, but at the same time, not everyone can be in one of those firms. […]. I love what we do, and we have a huge impact on the market. I like having a huge impact on the market. […] Don't think the grass is greener or you can necessarily have more impact at a really purpose driven firm. You can have as big an impact by keeping going at a firm that doesn't truly believe in it over time.’

Neil:

‘You're absolutely right, every meeting I have I can guarantee you the first thing someone will say is ‘I want to work somewhere that means it’ and that's a very nuanced statement because ‘means it’ is different to different people. Figuring out your own ‘why’ and purpose, then matching it to organisations sharing similar values is important.’

James:

‘You and I both know that there are some amazing, hugely inspirational, incredible people who work with some of the most conservative firms. They recognize that some of these big firms that don't genuinely believe it, actually need great people in them to keep them moving forward. They're having a huge impact in the sector by getting things done. They have a huge amount more tolerance for dealing with crap than I do. I can never do their jobs. That they're keeping those firms going in the face of hostility every single day is of huge value for all of us in that ecosystem. […] I admire what you do, helping people understand where it is that they fit in the sector. What's their tolerance for dealing with companies who don't really believe it and keeping them going? That makes sure that some of those big, big firms that are not particularly keen on it anymore, have great people in them who can keep flying the flag because it has a huge impact on our sector.’

Neil:

‘I love that. I haven't thought of that before and I can actually think of some classic examples of that straightaway’

?James:

?‘We see ourselves as a community. We continue to see ourselves as a community, I guess. You asked the question of how the industry has changed in the time that I've been in it. 14 years ago, I was very junior, but you'd know literally everyone who has worked in asset management sustainability. Now there are so many more of us, it's so much harder to know everyone but it’s about being open to actually connecting and talking to each other. We're all helping each other on this journey and just keeping our LinkedIn DMs open to help each other is hugely important thing.’?

?Neil:

‘That’s amazing. Thank you, James.’

?Farrell Associates -The future of sustainable finance with James Corah. - Insights Story