Meet … Christopher Past, Christine Present and Crystal Future

The ghosts of sustainable investment past, present and future

For those unfamiliar with the works of 19th Century English novelist, Charles Dickens, or the oeuvre of 20th Century puppet troupe, the Muppets, this interview draws on the story A Christmas Carol in which a moneylender (institutional investor?), Mr Scrooge, is visited by three ghosts who force him re-assess his life.

It uses the format of SRI-CONNECT's 'Meet' interview series in which we ask members of the global SRI & corporate governance community questions about their role in SRI, their thoughts on the industry's direction and their personal preferences.

Q1: Christopher Past, how have the last ten years been in sustainable investment?

Hard work! … and then more hard work!

The first nine years were hard work as the industry struggled with prejudice from outsiders, intransigence in financial service systems and its own immaturity. The growth in headline numbers showed that sustainable investment steadily gained traction over the period but what these numbers didn't show was the huge amount of work that was needed to achieve this. Although it felt at times like pushing water uphill, those in the industry were sustained by the knowledge that hundreds and then thousands of other people around the world were involved in the same project.

2018 was different. It was still hard work - but this time the hard work was generated by the rapid adoption of sustainable investment - in all of its many forms - across the financial services system and through the value chain.

The requirement for transition scenarios challenged banks, asset managers and listed companies alike. Credit rating agencies switched - more quickly than could have been imagined - from being targeted by a PRI initiative to being willing suppliers of research in search of sufficient demand. 'Green bonds' brought assets and energy to the fixed income asset class; 'ESG' became a de facto requirement in private equity capital raising and the editor of SRI-CONNECT (who's he?!) spent most of the year 'approving' applications to join the network from asset managers and listed companies who had previously been invisible to the SRI value chain.

Of course, we should not complain. Having to deal with a rapid growth of interest and demand is a good problem to have! However, it certainly tests (sometimes to breaking point) the capabilities of our investment theses, our capabilities, our systems and our people … and we are only just started on this next phase of development!

Q2: Christine Present, how has 2018 been for sustainable development?

Phew! 2018 has been a tough one. On the one hand, the challenges of climate change, pollution and inequality have been shown to be immediate and not inter-generational. At the same time the political systems in many countries have reached a level of dysfunctionality that make tackling these problems seem nearly impossible. It was, at times, hard not to despair.

However, we have to remember (and we often forget) that sustainable investment was originally developed because political systems were failing. SRI (or ethical investment as it was then called) was created to tackle apartheid - because political processes were failing to do so with sufficient force or immediacy.

As a movement for change, sustainable investment was never intended to be a contributor to a political process - rather it was an alternative route to achieve change. As such it does not need to be beholden to political solutions nor constrained by the inability of these systems to deliver the disruptive, just and sustainable change that the world now needs.

Of course, sustainable investment works best when the change it seeks is complementary to the change being pursued through political channels … and by civil society … and by consumers … but it is not dependent on these.

Where we, as sustainable investors, have been clever is that we recognised from the start that the growth and legitimacy of SRI is built on its ability to deliver superior investment returns for our clients. So long as we continue to do this, we can and will influence the world's travel towards sustainable development. While politicians can reject logic, science and socio-economic realities, we can't and won't and we will continue to generate investment returns and to achieve change by doing so.

For this reason, I get frustrated by people who argue that "until / unless we achieve systemic change within our political / financial system" we cannot progress. Yes, such change would help but it is not a pre-condition and it should not occupy us for a disproportionate amount of time. (Our 'mainstream' colleagues don't waste time lobbying for the change in financial systems that they would like to see. They simply take the world as they find it and then profit from and impact its direction of travel).

Within sustainable investment, we have earned - through 10 years of hard work - an incredible amount of firepower for change and we reinforce this every time our critical, analytical and disciplined 'real-world' approach to investing makes our clients and the world richer.

Q3: Crystal Future, what is your outlook for sustainable investment in 2019?

My colleague, Christine, is right to say that 2018 looked pretty bleak for the chances of sustainable development. But she is also right to point to sustainable investment as a powerful counter-movement to the insanities and vagaries of the political systems.

For 2019, I see potential in two areas: incremental change and disruptive change.

Under the banner of incremental change, I think we will continue to see:

• Sustainable investment grow across all asset classes and throughout the finance value chain - partly driven by best practice, partly driven by personal commitment of senior decision-makers and partly driven by regulation.
• Listed companies becoming much more proactive about the way that they communicate sustainability to investors
• A gradual raising of the regulatory bar (in some countries) offset by a lowering of it in others - thereby providing opportunities for the selective and opportunistic if not across-the-board opportunities

Importantly, there is also potential for disruptive change (and disruptive change is what we need) through:

• Data-science (with intelligent interpretation): could bring investment analysts into a much closer contact with the environmental and social impacts of companies without the cumbersome, unreliable and expensive data-gathering and reporting processes that are currently employed
• Market mechanisms for engagement: If asset managers trusted that their peers and competitors to step up and raise the relevant issues with companies, we could dispense with the vast amount of administration and bureaucracy currently associated with collaborative engagement. (I have no idea, however, what will bring this change about because I simply don't understand why collaboration exists in this area in the first place. Notably, it doesn't exist in 'mainstream' investment).
• From 'engagement' to 'investment': The urgency of (and ultimately the simplicity of the investment case for) energy transition could encourage investors to move from a 'how do I engage companies?' focus to a much more coherent (with their role as investors) 'how do I make money from this?' focus. (Once established, this 'intelligent communicated movement of capital' will render the 'divestment' vs 'engagement' debate obsolete.)
• Research markets opening up in a way that tends towards depth and quality rather than to breadth of coverage. While M&A will continue to shake up the provision of research, technology and implementation of MIFID globally* could also shake up the business models that support supply and demand in its current form, (* Yes, I know that MIFID isn't globally-applicable, but it does have the advantage of being fundamentally the right thing to do in research - for the benefit of end investors)
• Communications technology: Social media has presented the sustainable investment industry with the opportunity to achieve overnight the same degree of efficiency and interaction that 'mainstream' financial systems have taken decades to establish. They also enable us to connect more directly with end-investors in a way that 'mainstream' finance has so far failed to do. We are yet to scratch the surface of these opportunities … but they are there for us when we area ready for them.
• Multiplier effect of societal alignment: SRI has always done well to identify social, economic and environmental causes and to align our efforts with these. Alignment between our activity and that of wider civil society / consumer movements will continue to have valuable multiplier effects for both sides.

So, there's room for optimism that disruptive change can occur against a backdrop of steady, supportive incremental change.

Q4: Mike (Editor of SRI-CONNECT), can you leave us with something soft and Christmassey to wrap this interview up neatly?

As the original Christmas Carol novel reminds us finance without humanity is destructive and self-destructive (Somehow it has taken us 175 years to fail to learn the lesson that Charles Dickens (and many others before and since) highlighted).

So, it is worth reminding ourselves at this time that as well as being an industry with systems and policies and datapoints and algorithms and performance metrics, we are also a community of people and that we are all working towards (broadly) the same objective.

Many of us work on our own (inside firms of non-believers) and it can be lonely and exhausting to press the sustainability case every hour of every day of every week of every year. However, from where I am looking (… and that's in the middle of the industry's communications network) you all appear to be doing this very effectively.

So, I would like to thank all users of SRI-CONNECT for being part of this community; for your indefatigable efforts to drive forward the sustainable investment agenda and for encouraging me every day to step up and to add my small contribution to the work that you are doing to ensure that Christmas / Eid / Diwali Future is better than Christmas / Eid / Diwali Past.

(Important Editor's note: I always feel self-conscious sending out Christmas-timed messages as I know that a large and valued proportion of SRI-CONNECT's community do not celebrate Christmas. To these people, thank you for indulging me. Normal service from SRI-CONNECT will be resumed next week)