Scott Lane, founder and CEO of Speeki, writes that ESG and sustainability is weathering a reputational storm.
In the media, recent headlines have seen corporate giants backpedal on their ESG initiatives. Meanwhile, in the background, the introduction of ESG reporting regulations has heaped pressure upon the shoulders of asset managers and corporations, pushing them to engage with ESG and sustainability.
The result? Half-hearted investment in ESG and sustainability, with initiatives that look good on paper but see very little return on investment.
The truth is, ESG and sustainability can drive tangible value for both asset managers and their clients. But to leverage this opportunity for growth, asset managers need to rethink their approach to ESG and sustainability from the ground up – starting with who they place in charge of managing their ESG investment strategy.
Where asset managers so often go wrong is a dependence on ESG and sustainability specialists to dictate the direction of their ESG strategy.
To maximize the potential value of ESG and sustainability, investment strategies must be thoughtfully intertwined with a company’s broader corporate strategy. As asset managers look to tie their ESG and sustainability strategy to corporate goals and values, they should begin to turn to cross-function generalists with a broad expanse of experience in the business world.
At first glance, this might appear counterintuitive. Why wouldn’t you want a specialist with an academic background in diversity or sustainability to spearhead your ESG strategy?
The issue is that an ESG specialist’s strengths are also the very thing holding ESG and sustainability strategies back from succeeding. Their narrow, needle-sharp focus on the core tenets of ESG often results in missed opportunities for growth and value creation when drawing up their vision for ESG and sustainability.
ESG objectives cannot be achieved in isolation from a company’s corporate strategy – they must be informed by it. There is no “one size fits all” approach when it comes to ESG and sustainability. Investment strategies should be aligned with the specifics and particularities of the company and its industry, from its area of operation to its supply chain partners.
Untethered to businesses’ interests, ESG and sustainability strategies easily lose direction. They become vague and wide-sweeping, making them difficult to measure and achieve. As such, ESG and sustainability appear to underdeliver.
This is where the generalists come in.
‘Generalist’, in itself, is a vague term – but by generalist, I mean someone who has cut their teeth in the business and asset management world and can confidently use their knowledge and experience to shape the firm’s ESG and sustainability approach.
It’s this corporate know-how that sets them apart from ESG and sustainability specialists. Driven by an understanding of both the complexities of ESG and the industry landscape, generalists will be able to align ESG and sustainability investment strategies with the wider interests of the businesses they manage.
Where the specialist’s outlook is narrow and defined by their subject-specific knowledge of ESG, the generalist will have a firm understanding of where and how to implement certain ESG and sustainability targets. They’ll be on top of industry trends, and aware of future opportunities for ESG and sustainability investment, factoring this into the firm’s overall strategy.
Spurred on by an understanding of how companies work – and, crucially, what companies need – generalists will be able to take an agile approach to ESG and sustainability. They’ll be able to spot opportunities for investment and recognize where efforts need to be concentrated to best drive value for a company.
ESG and sustainability will become fully integrated within the firm’s investment strategy – a natural part of the decision-making process rather than a checkbox that asset managers feel they need to tick.
Too many asset managers have fallen short of completely integrating their ESG and sustainability approach with their overall investment strategy. It’s created a gaping chasm between ESG and profitability, compounded by focusing on ESG targets that are ultimately of little relevance to businesses and their stakeholders.
These shortcomings have combined to paint ESG as something it’s not, resulting in the misguided fear that ESG and sustainability cannot and will not be of tangible value to a business.
For as long as governments continue to introduce ESG and sustainability reporting regulations, the pressure will remain on asset managers to engage with ESG. Firms need to grab the opportunities ESG presents with both hands – and generalists are the key to unlocking its potential value.
