Opinion  

It’s time to stop talking about ESG

Sally Hickey

Sally Hickey

It has been quite something to track the use of the term ‘ESG’ in this industry.

From being almost totally unheard of a few years ago, it now pops up in every new fund, strategy and even job title that lands in my inbox with a metaphorical thud.

But the term has proved almost too popular, and the industry is now saturated with ESG everything.

I’ve come to the conclusion that, actually, the time has come to stop using this phrase, for a number of reasons.

Firstly, the term in itself has turned out to be an oxymoron. 

The oft-used example of Tesla reveals the contradictions of trying to invest alongside environmental, social and governance concerns. 

The consensus is that electric cars are better for the environment than petrol or diesel vehicles, so ‘ESG investors’, whoever they are, should invest in the company as an ESG stock.

Environmentally-friendly the cars may be, but the ongoing battle between Tesla's chief executive Elon Musk and the Securities and Exchange Commission over the former's use of social media casts a cloud over the company's governance credentials.

The second reason, as put eloquently by Ben Yearsley of Fairview Investing in a podcast for FTAdviser recently, is that the term is especially confusing for investments as there is no ESG sector, as there is for financials or tech.

Not only is this misleading, he said, it can lead to people putting together unbalanced portfolios.

ESG funds now hold a menagerie of sectors and geographies, leading to a headache for advisers who are forced to tease apart these funds to understand the impact they would have on a client's portfolio.

The other issue is what happens to the non-ESG stocks. The exclude vs advocate argument has been getting louder in recent months, and the advocate argument seems much more reasonable.

The crux of the issue is what happens to the ‘brown' stocks, those that are deemed not ESG-y enough to be held. 

Those who believe in exclusion, which is a number of wealth and fund managers, say it is enough not to hold these full stop. 

But others, most noticeably Hendrik du Toit of Ninety One, say this is wrong, and if an investor is really looking to improve the world they should hold these brown stocks and use their power as shareholders to push the company towards more sustainable measures.

My final point is that, frankly, nobody really gives a damn.

Most advisers I speak to say their clients are not half as engaged in ESG as we all think they are.

Most of their clients are happy with investments that give them the returns they want, and occasionally express concern with the perceived morality of their investments, if at all.

I have friends who, shock horror, do not even know what ESG stands for.