There has been a strange development in the Brackett household. At one side of the house resides the domain of Institutional Adviser Ltd, my business. At the other side, in the spare bedroom, my wife continues her work from home, conducting her role as Chief Commercial Officer of a law firm. Occasionally these two work worlds come together, often in the kitchen, to discuss matters unrelated to our respective employments. But over the past couple of weeks there has been a subject discussed that has been common to both of our worlds; think of the intersection of a Venn diagram. Occupying that intersection has been “ESG”.
Having lived the ESG discussion for such a long time within the investment industry , I have found it interesting to hear of its application and interpretation from the angle of another sector – in this case the legal sector. Of course, if I paused for a second and thought about it there is no reason why the acronym ESG should not be being discussed in all sectors; indeed, we will only succeed if there is the development of a common language, adopted across commerce and the broader community. If investors are demanding higher standards of the companies in which they invest, across environmental, social and governance factors then it makes complete sense that those companies are equally as versed in the debate. The case is therefore true of the service providers to those companies.
I was curious as to whether the growth of ESG has been taking place at a similar pace to the investment industry in other sectors, such as law, so I googled the question. The response was mixed with specialists in the field rising to the top of the search; people who look as if they have been very familiar with the field for some time. Digging beneath the surface though, it would seem that the sector is in rapid catchup. One article from The Blended Capital Group entitled “chasing the dragon, the rise of the ESG law firm”[i] spoke of ‘..law firms scrambling to polish their ESG credentials.’ It would seem that the top-down pressures of regulation and capital markets requiring companies to improve their ESG act has cascaded down to the desk of the company’s General Counsel who, in turn, are seeking the help of their legal advisers for guidance.
But joining the party late in the game may well prove beneficial. While the investment industry bemoans the multiple and sometimes conflicting standards and definitions within this area and the use of greenwashing by managers not wishing their investment strategies to be side-lined for want of an ESG label, perhaps other sectors can cut straight to what is genuinely important, learning from the lessons of the early adopters.
Going back to the kitchen table discussion, the language from the non-investment side of the table is around ‘authenticity of approach’, ensuring companies have realistic and believable goals and best practice being aligned to strong leadership. Authenticity certainly struck a chord and if that is the advice that is being promoted to corporate boards then hopefully the ESG oversight role of the institutional investor will become an easier one.