‘ESG tourists’ are packing their bags as the depth and breadth of anti-greenwashing regulation and recent underperformance takes hold, according to latest impact report by WHEB Asset Management.
A greater focus on engagement by asset owners and regulators has “unintentionally fuelled a stewardship stampede” by asset managers, according to a report by impact-focused firm WHEB Asset Management.
While it is a positive development that investment managers have intensified their engagement activities, the report argues that “an excessive focus on metrics… does not adequately capture the depth or nuances of meaningful stewardship that will influence real-world outcomes”.
Speaking to Impact Investor, WHEB’s head of research Seb Beloe stressed the need for clear purpose and contextualised metrics when measuring the impact of engagement activities on investor goals. He added that two core fundamental problems with engagement practices are a lack of real clarity and certain unrealistic “NGO agendas”.
“Ultimately, the point of engagement isn’t the engagement, it’s the outcome that you’re seeking from your engagement. And yet, the vast majority of reporting tends to talk about the number of engagements being done,” said Beloe.
“People often don’t really know why they’re engaging and there is a lot of confusion around it. In addition to that, engagement can be driven by NGO agendas, which are not the same as an investor agenda,” he added.
Beloe also emphasised the importance of framing conversations with management teams in a way that aligns with their long-term success, and the need for more sophisticated language to differentiate between various sustainability strategies.
Investor ESG exit
The report also looks at the issue of ESG and sustainable impact funds’ outflows, the challenging performance environment, and the waning popularity of the sector during 2023.
Looking at investor appetite for sustainable and impact funds more broadly, Beloe stressed the need for patience among inventors who might be feeling frustrated by the performance of mid-cap businesses often operating within the sustainability and impact space.
The report goes on to describe asset managers who once poured money into the sustainability market as ‘ESG tourists’ who are making an exit as the depth and breadth of anti-greenwashing regulation bites, and don’t have the “staying power of dedicated impact and sustainable investment houses”.
“We believe that asset management can be a powerful tool for turning the tide on climate change as well as other critical social and environmental issues,” said Beloe.
“It is also crucial that [investors] are able to trust that their capital is indeed being deployed to tackle climate change and support the development of a more sustainable economy,” he added.
