ESG has a communications problem

Wearing my communications hat, Alastair Crabbe writes, the sands have dramatically shifted over the past few months on the ESG debate.

Not too long ago, ESG was front and centre in almost all fund conversations. The questions were rarely about whether you had an ESG strategy, for this went without saying, instead they were more along the lines of how it worked, its impact on your approach to investment and how it influenced the way you managed your company. 

We even came across anecdotes of funds losing mandates just by failing to mention ESG in the first few slides of a presentation.  

Unfortunately, in recent months the ESG theme has become more complicated and less clear-cut than it first appeared. 

The reasons behind this are largely two-fold: The first is trust, with question marks over how ‘green’ a fund really is and the organisation behind it; the second is one of performance, with concerns among investors that the perceived haircut they are taking for going green is too much to bear. 

Now, after three years of record inflows to ESG funds, we have this year been seeing the money going the other way, although to be fair to ESG so has almost every other investment strategy. But importantly the ESG theme has not gone away, instead it is hunkering down during these turbulent times. 

Investors know full well that ESG is a must for all our futures, but they need to regain trust in the sector. Conversations are today about performance and real return, and less about ESG, although this can and will change quickly.  

To achieve that trust, managers and large management houses need to embrace a robust ESG standard and integrate it into their DNA. No longer can it be a marketing ploy, instead it should be front of their deck and something they want to shout about. 

This period may actually turn out to be a blessing, with stronger ESG managers that really do set out with the right intentions.

For any new manager, the approach to ESG should be one of their first considerations. Yes, it is a discussion point, so there is an element of marketing, but it is also the future and for those managers that can successfully combine alpha generation with a real ESG strategy will see the investor flows head their way.