In homage to the Halifax’s new policy on name badges carrying personal pronouns, Williams Investment Management decided to implement a similar strategy. I self identify as ‘John’, ‘Yorkshireman’ and ‘Bloke’ (or ‘Geezer’, for any readers in the London area). I’d wanted to add ‘George Clooney lookalike’ and ‘F16 Fighter Pilot’ but unfortunately there wasn’t enough room. I’m joking, of course, I wear specs and contact lenses, so I’d never get the jet gig.
Anyway, I digress. The point I really wanted to address was the way the investment management profession seems to have stumbled into the realms of fantasy with regard to ‘responsible investment’. Now, there’s nothing wrong with fantasies. We all have them; in my less lucid moments I’m undisputed Middleweight Champion of the World, Manx Senior TT Winner, the best surfer on the planet and Mrs Newsome never buys another pair of shoes again. Ridiculous, I know, although the boxing, surfing and motorbike stuff is at least theoretically possible. However the ESG (Environmental, Social and Governmental) agenda appears to have captured a significant proportion of our industry and I seriously question whether it has forgotten what it is supposed to be doing.
Now, in the same way that today’s mainstream news bulletins warn viewers they might be about to witness upsetting images, I believe I must now do something similar. I almost hesitate to say it but here goes; the whole point of investing is to make money. There; I’ve said it. I know, I know it’s a crazy concept, like the earth not being flat, or Sir Keir Starmer being able to define a woman, but sometimes it is better to just confront these issues rather than beat around the bush. Those distressed by the last couple of sentences may prefer to find a ‘safe space’ before continuing.
I recently received details of Fidelity’s second annual ESG survey. Now, I’m not picking on Fidelity. I could have chosen numerous other investment companies that inundate me with ESG material ad nauseum, i.e. just about all of them. However, I believe the following couple of sentences illustrate the dangerous ambiguity that is now all too often part of the ESG debate. ‘Fidelity International’s second annual ESG analyst survey finds signs of year on year progress towards net zero but there’s a long way to go to get to a more sustainable economy. Identifying those companies taking concrete actions is crucial to supporting the transition and allocating capital to where it can do the most good.’
It’s the last line that really got my attention. Are companies seriously meant to allocate capital to where it can do the most good rather than where it can earn an adequate return in excess of its inherent cost? If it’s the former, it stands the principle of commerce on its metaphorical head. If capital cannot earn sufficient return, the enterprise deploying it will cease to exist. How can a viable entity create jobs, payroll taxes, VAT, corporation tax et al if it, to put it bluntly, doesn’t make money? Does the open pit copper mine go ahead in order to supply the massive demand to manufacture batteries for electric cars or do we plant trees there, instead? And who decides what is ‘good’ in the first place? Is it ‘good’ to fly to Tuscany for a long weekend or quaff an Australian Pinot Grigio?
It seems to me that very few are discussing these obvious ambiguities. If you confuse investing with altruism, it’s highly likely you’ll end up with a dog’s breakfast that even Fido will turn his nose up at. All too often I see mainstream investment firms investing in early stage ideas that would normally be far more appropriate for private equity investors. However, because they have ESG potential, they are finding their way into Mr & Mrs Blogg’s portfolio. Do Mr & Mrs Bloggs truly understand the risk level they are assuming? Can anyone, realistically, quantify it in any event? Are such businesses ever going to be capable of generating worthwhile returns on capital? If you’re not asking these questions, then from an investing perspective, you’re asleep at the wheel.
It is my belief the elapse of time will cruelly expose much of this for the slack, wishful thinking it really is. It reminds me of the scene in the original 1972 version of The Poseidon Adventure where Rev. Scott (played by Gene Hackman) is leading his small group of survivors up from the bowels of the ship, which is now not only upside down but listing in the direction of the bow. They happen across a much larger group heading zombie fashion towards the bow and Scott asks some of them why they are going that way. They reply they are just following everyone else who in turn are following a member of the crew. Despite Hackman’s pleas that the only chance of survival is to turn round, a collective need to conform to the crowd ensures nobody is prepared to do so. It’s such inflexion points that separate success from failure and our guess is that way too many are, in sheep like fashion, moving towards the bow. We are heading for the stern with Rev. Scott.
The value of investments and any income from them can go down as well as up and you may not get back the amount originally invested.
This material should not be considered as advice or an investment recommendation. Investors should seek advice from an authorised financial adviser prior to making investment decisions.
John Newsome can be contacted on 01423 705123 or firstname.lastname@example.org. Williams Investment Management LLP is authorised and regulated by the Financial Conduct Authority.