What Will it Take to Be an ESG Leader in 2021?

Vanessa Bingle, Brian Helmes

This article was originally published as part of our Alpha Outlook 2021

Many investment organisations are seeking to position themselves as “market leaders” in ESG & Responsible Investment. With the market landscape shifting fast, the notion of what it means to be a leader is also changing. Firms with a long heritage in ESG & RI are being surprised by the pace of change and need to do a lot of work just to stand still.

What does it mean to be a leader?

In the “old world” of ESG & RI, being a leader was fairly simple: firms could talk about ESG being an important input into the investment process and about engaging to drive change, while making few changes in their investible universe. These were relatively “comfortable” statements, with organisations able to talk about ESG & RI without having to meaningfully change their investment processes or client interactions. By definition, leading means stepping out in front of the pack. This may be an uncomfortable position as being a leader means being a first mover, and this may come with some risk. We see leading organisations embracing this mindset and shaping how the industry responds. These leaders are re-evaluating their role in the industry and society – and explicitly positioning themselves to finance a more sustainable future.

What do we expect leaders to do in 2021?

  • Be consistent: Interrogate and align behaviour across your corporate organisation, investment decision framework, and engagement and voting activity. Report on these outcomes in a thematic way.
  • Set targets: Set and publish quantifiable targets, monitor yourself against them and proactively publish information that enables others to hold you accountable.
  • Follow through: Monitor the effectiveness of engagements and have a clear plan of action if the engagement is unsuccessful. What’s the point of engaging if it would never lead you to change your investment decision?
  • Don’t be afraid of exclusions: Many firms worry about alienating certain client groups even by mentioning exclusions. Thoughtful, targeted exclusions will be respected by clients – and you can shift the default offering while still allowing clients more flexibility in segregated mandates. A dynamic element, for example related to engagement activity, can offer flexibility compared to fixed exclusions.
  • Be the best partner to your clients: Scan the horizon to understand how incoming regulation and trends are affecting them. Proactively show how you plan to meet their needs in dynamic and flexible formats. Don’t wait to be asked.

Finally, it is important to remember that to reach a position of market leadership will require meaningful work. Many investment organisations are investing significant resources in transformation programmes to substantially upgrade their ESG and RI capabilities and messaging. The level of transparency and accountability required means easy access to the right data in a digestible format, which may require substantial infrastructure build. Does your strategy and transformation plan match your stated ambition?

For more on ESG & Responsible Investing, please get in touch.

About the Authors

Vanessa Bingle ESG
Vanessa Bingle
Senior Manager

Vanessa heads Alpha's ESG & Responsible Investing practice. Since joining Alpha in 2018, Vanessa has led a variety of investment-focused projects with asset managers and asset owners, including helping to design and embed an organisation's ESG vision across investment- and client-facing activities, post-merger integration of investment teams, and designing investment research collaboration approaches. Before joining Alpha Vanessa worked for six years as an Investment Consultant.

Brian Helmes

Brian is a Boston based Manager with over 15 years of diverse experience in financial services and management consulting. Since joining Alpha in 2017, Brian has advised leading asset manager clients on a series of transformation initiatives ranging from operating model strategy to complex front-office implementations. Prior to joining Alpha Brian worked as Wealth & Asset Management Consultant at EY & Client Relationship Manager at eSecLending.