ESG matters for a lot of reasons. One of the most important is simply that it matters to the investors that allocate the money. It’s their capital and it’s important to them that it be invested responsibly. Frankly – I think it has always mattered – after all, how many LPs do you know that would ever say that the “ends justify the means” when it comes to performance?
As discussed in the previous post, you are likely already thinking about the impact of your investment process as it pertains to ESG factors – even if those reasons are driven by considerations other than ESG. The challenge most have is, what do they say to demonstrate that to investors?
The “what” is the easy part
Articulating your core values in a way that is sincere boils down to one thing and one thing only. Authenticity.
We approach ESG-related messaging work exactly the same way we approach brand-related messaging. By focusing on the core values that matter to a client. And then communicating it in a way that makes an impact. But it all starts with identify a client’s genuine beliefs.
In the case of ESG – it’s a very specific kind of deception related to misleading statements implying overly-favorable environmental impact of a product.
But managers can avoid all of that by simply emphasizing what really matters to them. It may have absolutely nothing to do with the environment. For instance, the PE buyout shop that sets a standard for factory working conditions of its manufacturing companies. Or the minimum age of workers to ensure against child labor abuses.
When you think about it, there are dozens of factors that are covered within ESG – from racial and gender equality to portfolio company supply chain management to the role of the audit committee in governing a firm.
Too many clients get caught up in what is not okay to do. Don’t get stuck in that thinking.
The first step is to get your arms around your existing values and practices. The second step is coming up with a methodical, data-driven way of measuring how these considerations are trending over time. It’s nothing more than a process related to identifying data to measure over time.
And when you think about it, isn’t that something every manager claims to excel at anyway?