Archie Pearson is a voting & governance analyst at Rathbones. He supports Matt Crossman, on the stewardship team, ensuring informed proxy voting and corporate engagement activities as part of Rathbones’ stewardship policies, and helping to promote the integration of ESG within the investment process.
Responsible investment definitely seems to have gone mainstream, with the likes of film director Richard Curtis – of Love Actually and Four Weddings and a Funeral fame – making the claim that ethical investment can reduce a person’s carbon footprint more than turning vegan or cutting air travel and turning his attentions to the UK’s £3 trillion pension industry. How much awareness do you think the average person has of the impact they can have on addressing climate change and other big environmental and social challenges?
There’s no doubt that awareness is growing, and we’re all becoming conscious of what we can do to make a difference, particularly when it comes to pensions and asking the right sort of questions. That’s partly due to David Attenborough’s ‘Blue Planet’, which brought our plastic problems to life in the same way that Greta Thunberg’s speeches have shown us the dangers posed by climate change. This knowledge is so much more mainstream than it used to be.
Consider my parents, for example. A few years ago, they would have been the first to admit that reducing their carbon footprint wasn’t top of their agenda. But as outdoor enthusiasts, the visible impact on nature and local biodiversity, and the growing inconsistency of weather patterns have shown them that climate change is not another country’s problem. Now they take real joy showing off a new sustainable brand or talking about getting a train rather than flying – they’ve even started growing their own asparagus.
Information is so much more available now than it used to be. Now everyone can read about the many examples of corporate environmental, social and governance (ESG) failings, and the impact these failings have on society and the planet; corporations in sole pursuit of growing their bottom line pose a serious danger. But education remains paramount, and far more can be done by companies and governments. We can all ask our banks, investment managers, and IFAs what we’re investing in and whether there are any alternatives.
Q. What would you say to a young person who wants to make a positive impact with their investments?
I would say that by being active owners of the companies you invest in, you can influence corporate behaviour and benefit society, stakeholders and the planet. Effective stewardship is crucial to building a more sustainable society.
To give them something to engage with, I’d show them the Sustainable Development Goals and ask which problems mean the most to them e.g., tackling poverty, improving gender diversity, increasing access to medicine.
Finally, I’d be clear that responsible investment is fundamental to righting the wrongs in the world. Finance can’t be an afterthought in the sustainability agenda.
BESPOKE, TAILORED … AND HUMAN
Q. In your day to day experience helping clients meet their financial goals and ambitions, how much importance do you think they place on having a positive impact on the world through their investments? Do you think they see this as being separate from, or integral to their sense of financial health and security?
We’re increasingly being asked about ESG and how our clients’ portfolios can be more sustainable, and this trend seems to be led by millennials and Generation Z. More and more evidence shows that investing with an ESG lens can lead to outperformance in the long run; financial returns don’t have to be sacrificed to invest responsibly. Plus, numerous academic studies also argue that those companies and funds with strong ESG policies proved more resilient to the effects of the pandemic.
Conversely, there are mounting examples of companies which failed to properly manage ESG risks and subsequently experienced a considerable drop in valuation, such as BooHoo Group in 2020. More recently, when Cristiano Ronaldo swapped a Coca-Cola for a bottle of water, the share price of Coca-Cola fell. Moments like these will prompt some investors to look for sustainable alternatives to protect their financial health, as well as generating a more positive impact.
NOTES TO SELF
Q. If you knew at 25 what you know now with regard to financial planning and investment opportunities, what would you do differently – personally speaking, in terms of a long-term approach to financial security and ethical investment?
I would think about how governments around the world are going to deliver on their net-zero commitments. For instance, how will the UK government actually deliver net-zero emissions by 2050? Will travel have to be greener, meat consumption reduced, and plant-based alternatives improved? Which companies will be at the forefront of sustainable fashion or sustainable housing? Which companies will be main players in clean energy? Shell didn’t become a multi-billion-dollar company overnight. There’ll be strong ESG-performing companies that will take 10-15 years plus to gain scale – it’s wise to invest for the long term.
I would also absorb more of the evidence which points to longer-term ESG outperformance over traditional investment as I’m sure it will seem tempting to jump ship at the first hurdle. A long-term mindset is key here too.
Finally, I’d say it’s never too early to invest. I would have begun much sooner.
BUILDING A BETTER FUTURE
Q. In our digitalised world of instant communication, moral values are increasingly being used as social currency, especially by younger generations – and, undoubtedly, the global pandemic has intensified public demand for a more sustainable approach to life in the ‘new normal’. How do you think this new morality will manifest itself in consumer behaviour, and do investors have a role in reshaping post-COVID society? With the pandemic highlighting many areas of previous weakness, could this collective experience be a positive catalyst for change toward a more responsible form of capitalism?
There are quite few studies pre-dating the recent intensification of performative displays of sustainable values that demonstrate a link between the perception of corporate responsibility and consumer behaviour. A tried and tested turnaround strategy has been to take a poorly selling product, align it with a charitable cause and donate a percentage of profits. Companies deemed socially irresponsible have had to pay their staff more than their peers who were perceived as more responsible. There is a tendency to dismiss the latest focus on sustainability as merely a fad, but this work shows it has roots than run far deeper than that.
There is also a large body of evidence, again predating the more apparent cultural shift, that companies associated with better corporate social responsibility benefit from a lower cost of capital and better financial performance. Which is a relief, because investors have a leading role in ensuring a responsible form of capitalism. From the 1970s, there has been evidence that the complex relations firms have with society, the economy and the environment have been ignored or subordinated in the name of speciously meeting very short-term earnings targets. We believe that this reductionist strategy is short sighted.
Alongside the many negative consequences for the broad socioeconomic ecosystem, it has jeopardised the opportunity for profit long into the future. We believe that investors must encourage a new approach, one that acknowledges that long-term profits depend on a diverse, thriving ecosystem.
One that acknowledges that a healthy, well-paid, socially mobile workforce matters for market size and productivity; that insurance losses from climate change-related events have increased fivefold in recent decades and that the environment and financial stability on which markets depend are connected; that companies are better off prioritising basic research and investment over financial engineering.