Remarkable Pulse (16th Dec 2020) – ESG, AI & Ethics
Every Wed morning, I host a virtual gathering of hand-picked, open-minded, experienced and enthusiastic industry experts to discuss & debate the Hot Issues of the Day. This note is simply a chance to share some of what we discussed this morning.
We share thinking, hints'n'tips and market intelligence in an informal & purposely interactive environment, typically limited to 6 participants to ensure everyone has a voice. Very importantly, Remarkable Pulse is run under the Chatham House rule, and so I will never share the participants but some of the intelligence we discuss is definitely worth sharing:
ESG (Environmental, Social & Governance), in general…
This is a regular topic of conversation, normally about data & analysis, but this time we started with the key regulatory point being that a new EU regime on sustainability-related disclosures will come into force in March 2021. This is a quick summary from Lexology (a useful site with comprehensive legal updates fyi) and a link to the European Commission’s site if you like the detail itself…
FS firms need to disclose how they integrate ESG factors into their risk & investment decision-making processes, both for the investment product level and also at firm level. With Brexit, the FCA has already indicated a UK-specific regime. This looks to be a big deal.
We talked about the 2004 article by Simon Zadek “The Path to Corporate Responsibility” describing the “...bumpy route Nike has travelled to get to a better ethical place, one that cultivates & champions responsible business practices”. There was a view that these lessons are being discussed increasingly both by asset managers (particularly Investor Relations) and asset owners. Assets may be sticky but reputational damage can unstick most things pretty quickly!
“It takes 20 years to build a reputation and 5 minutes to ruin it. If you think about that, you’ll do things differently.” – Warren Buffet
…Adding in AI & Ethics
There are a huge range of ESG products, services & benchmarks flooding the market, from the large data providers all the way down to FinTech start-ups. Some examples from the industry bodies themselves, include:
- The Pension & Lifetime Savings Association (PLSA)
- DWP forcing large pension schemes to address climate change risk
- The CFA Institute’s efforts to create a global standard
- And finally, The Investment Association's initiative
We discussed a novel approach of looking at the ethical use of data and crafting a useful benchmark for the industry too. Early in 2020, HSBC updated their Conduct framework and, in particular, outlined their 'Principles for the Ethical Use of Big Data and Artificial Intelligence'. Paraphrasing some points, they stressed the need to Protect Privacy, Address Unfair Bias & Be Responsible. Interestingly, they also pledged to ‘Adapt Governance to meet Emerging Needs’ & ‘Contribute to Development of Best Practice’ which strike me as being key actions to expedite and align with asap.
Watch out for some significant noise early in 2021 on AI & Data Ethics.
To end with, I will quickly point out this article from Morningstar “How ESG friendly is Christmas?” I’m pleased to report that the toy makers Hasbro & Mattel score well, Publishers do even better and I’m not even sure I could sleep at night if Walt Disney was anything other than “Low Risk”. However, they do neglect to rate the most important person at Christmas. Presumably being a private company or sole trader, Father Christmas (I’m old school, sorry) is just too small for Morningstar – bah, humbug!
I’m always keen to introduce new people to the Remarkable Pulse so please do get in touch to book a slot, especially if you’d like to be a Guest Speaker!
In case I forget before we get there, I wish you all the best for Christmas and I’m very much looking forward to welcoming in 2021 as a vast improvement to 2020!
Have fun out there.
Audere est facere.