The real opportunity in ethical investments is in brand, not product, choice
Ethical investing – however we may choose to define it – fits nicely into the broader ‘conscious consumerism’ trend, and so we are hearing more, and more serious, conversations about its importance.
We saw an extreme example of this recently when Momentum targeted branches of Barclays to protest about its funding of fossil fuels in Europe. The bank itself is a signatory to the UN’s Principles for Responsible Investment (PRI) and is not alone investing in fossil fuels.
The protest was small and in many respects the bank was fortunate the group didn’t organise its protest on a day they were actually open. But it serves to highlight the importance of Environmental, Social and Governance (ESG) policies and approaches that any banks and investment businesses take to investing.
While conscious consumerism can be dismissed as shallow ‘slactivism’ by some, this protest demonstrated people do care just enough for it to become an unwanted news story.
For large institutional investors, adopting a robust ESG process seems to be a straightforward choice. It’s good business. As far back as 2013, a paper by EY made it clear that a sound ESG policy had long-term financial benefits.
The clear business advantages add to the obvious political, social and ultimately brand and reputation benefits of acting on behalf of our collective long-term interests. As an indicator of the financial services industry’s recognition of these benefits, the UN’s PRI has attracted the signatures of vast numbers of the world’s largest institutional investors and managers.
But if everyone’s got a sound ESG mandate and is signed up to PRI then it’s not differentiating to consumers. Nor does it mitigate against reputational damage in isolation, as Barclays found out.
So how to stand out in ESG?
One obvious route would be to go beyond policy and provide more active ethical fund choices, by focusing on funds based on negative or positive screening of companies that either excludes those that do harm or is made up of those considered to have positive impact on the world.
But there is an issue here. For most consumers, investing is a passive and infrequent ‘decision’ delegated to someone else. Ethical investing can attract higher charges and retains an uncertainty over whether it will impact the performance of their savings.
And the typical consumer does little to equip themselves to make these decisions. It’s likely they’ll commit relatively little effort to an evaluation of any specific commitment from any brand.
While consumers continue to struggle to make these decisions, Ethical investing will remain a niche sector.
So where then is the broader consumer opportunity for a business that believes in its ESG mandate?
While stricter ethical funds are a niche consumer choice, they can act as a tangible proof point that helps consumers believe in a commitment to ESG issues, even if they are not currently ready to actively choose those funds themselves.
And while a sound ESG mandate itself may reduce the risk of missing future opportunities, we’ve seen with Barclays it needs a solid framing to protect from reputational damage and being out of step with social and political direction. More than this, it needs a story to become a true brand asset.
The task for banks and investment businesses must therefore be to define an ownable and credible narrative on ethical investment; one that provides customers and prospects an accessible way to understand how this ESG policy translates to positive impact and how choosing you ultimately supports this.
The ultimate goal is not for consumers to choose an ethical investment from you, but to choose you as an ethical provider for their investments.