'What Baillie Gifford's spat with Greta Thunberg tells us about ESG's future'

Baillie Gifford has long centred a part of its marketing strategy around sponsorship of events that attract not merely the affluent but also the consciously learned, a group likely to have both the most formed opinions in what constitutes 'ESG'.

That includes the Baillie Gifford literary prize for best non-fiction book, which was previously known as the Samuel Johnson prize.

It was another literary event, a book festival in Edinburgh, where Baillie Gifford raised the ire of Thunberg. 

Thunberg refused to take part in the event on realising the nature of Baillie Gifford’s business, as a company running active funds some of which have investments in fossil fuels. 

Thunberg described the literary festival as “greenwashing”.

For the wealth managers, there is an increased awareness of the bespoke perspective or priorities of each client. 

FTAdviser previously reported on Baillie Gifford’s response to the claims, in which they highlighted how they have much less invested in fossil fuel companies than their peer group average. 

Baillie Gifford has been vocal in its view that others, rather than they, do the greenwashing – indeed the first time I ever heard the term “greenwashing” was from a Baillie Gifford manager, who was criticising the policies of his rivals. 

But the issue for the Edinburgh-based firm, and any others in our industry, who wish to lift their petticoats and flash their sustainable credentials is that ESG is at once both an imprecise and an absolutist theme. 

Imprecise because standard definitions are hard to find; for example, Baillie Gifford remains one of the largest shareholders in Tesla, which seems to hit the environmental credentials for ESG inclusion, but what of the cost of the cobalt mined in Africa and transported to faraway factories?

At the other end of the spectrum, one stock Baillie Gifford itself has highlighted is Tesco.

Shareholders in this business are getting part of their return from the petrol stations on some Tesco supermarket forecourts; does this tiny sliver of revenue as a total portion of the entirety of Tesco’s profits disqualify it from an ESG mandate?

For some investors, the answer will be yes, for others its likely to be a no; marketing one’s wares in such a climate is likely to lead to instances where the reputation of the firm as a whole suffers.

A parable to illustrate this may be that of non-alcoholic beer. In the UK this is classified as a drink with no more than 0.5 per cent alcohol. 

Many fund houses have tried to square the imprecision circle by narrowing the focus of the ESG funds they bring to market.

An absolutist abstentionist might object that a drink with a vanishingly small quantity of alcohol can be labelled alcohol free, but the rationale of the powers that be is that a ripe banana contains precisely the same amount of alcohol, and those can not be banned.  

Many fund houses have tried to square the imprecision circle by narrowing the focus of the ESG funds they bring to market, focusing perhaps on the environmental or the social, rather than claiming to focus on all three.

But a fund house pursuing such a strategy risks either capturing only a slug of the potential total ESG client base, or having to launch funds for each segment of the market, risking having some sub-scale funds within their range.

The alternative is to narrow the scope, and pursue just one part of the potential client base, but have that client base sceptical because other funds within the business do not pursue the strategy they like. 

And for the wealth managers who operate in this space, there is an increased awareness of the bespoke perspective or priorities of each client. 

This is prompting complicated conversations for some, as a client sees the portfolio that has been constructed for them and signals their disapproval of some of the holdings.

If such disapproval gets expressed by either a large number of clients, or a small number of high-profile individuals, it can cause substantial reputational damage to the firm. 

This is moving wealth managers towards favouring the creation of ESG portfolios that are bespoke for each client – that is more time consuming for the adviser and wealth manager, and bespoke wealth management tends to come with higher fees for the client, creating another awkward potential conversation for the wealth manager. 

So, the Baillie Gifford spat with Thunberg may be just be a glimpse into the future for those firms that aspire to be active in the ESG space, creating a rare case of 'seller beware' in our industry.    

David Thorpe is investment editor at FTAdviser