The importance of integrating ESG (Environmental, Social, Governance) has unquestionably grown for investors, and there is now an increasingly competitive market for ESG & Responsible Investment products. A corner has been turned in the conversation between asset owners and asset managers, moving from;
“Do you have a policy for integrating ESG?”
“Show me how comprehensively you are integrating ESG”
For asset managers, this places a growing emphasis on telling your ESG story clearly:
What are you doing? Why are you doing it? How are you doing it? Why is it different?
- Sustainable Invest/Morningstar 2019
- LCP Responsible Investment Survey 2020
- Sustainable Signals: Morgan Stanley 2018
It can be hard to distinguish between managers’ ESG practices in an area surging with popularity and interest. For those who can positively differentiate themselves from others, there will be significant reward.
The Client's Journey with ESG
8 Tips for Effective Communication
- Be transparent and authentic in your messaging
The reputational risk associated with green-washing or obscuring your messages is high. Be clear where your processes are comprehensive, but also up-front about your areas for active development
- Speak clearly and simply – avoid jargon
Acronyms and jargon can be confusing. ESG is a good shortcut at the best of times, but jargon shouldn’t be overly leaned on to describe ultimately simple concepts
- Engage with clients on ESG throughout the customer journey
Your ESG messaging should be consistent across all content and client engagement including meetings, marketing materials, and reporting
- Be outcome-driven
Talking about your inputs and process are the right places to start, but this must be supported with evidence of the outcomes. This is explicitly described in 6 of the stewardship code’s 12 principals
- Embed the appropriate infrastructure
Your technology and data infrastructure should allow you to get the relevant information to your clients. For example, if as an organisation you are focused on Climate Change, are you making it easy for clients to scrutinise your portfolio alignment with Paris Agreement temperature targets? Do you have the capability to report your engagement and voting activity with the same lens? This may require investment in new technology or the development of existing tools
- Demonstrate how you approach ESG differently to others
Could your clients articulate what you’re doing and why this is offering value? ESG considerations provide a clear opportunity to show the additional value provided by active management
- Ensure your ESG messages align to your company’s actions
Walk the talk – if you publish significant thought leadership on Climate Change and the risk of stranded assets, it becomes contradictory if, as a manager, you allocate large amounts of capital to assets that are exposed to these risks
- Get Creative
There isn’t a “one size fits all” formula for how you should communicate ESG most effectively, and there’s no legitimate reason why all marketing and reporting must look and feel the same. Understand the changing needs of your clients and don’t be afraid to service these needs in new, creative, and engaging ways. Tools such as impact calculators, climate scenario visualisation, and temperature tests can bring quantifiable outcomes to life. Use this as inspiration to offer something more intuitive and interesting: Litmus test – Could 75% of your fact sheet be understood by the average retail investor?
ESG has moved beyond simply projecting a social responsibility, towards demonstrating a clear and systematic approach to the risks and opportunities you confront in a changing world.
For asset managers, the reasons for communicating messages about ESG have changed. ESG has moved beyond simply projecting a social responsibility, towards demonstrating a clear and systematic approach to the risks and opportunities you confront in a changing world. It’s critical to be transparent with your clients and demonstrate your systematic process in an engaging and easily interpretable format. By following the 8 tips above, your communication of ESG can enhance your proposition and truly set you apart in a landscape characterised by acronyms, jargon, and false promises.
Alpha has a market-leading team of ESG & Responsible Investment specialists who have worked with asset managers on communicating ESG. Reach out to Vanessa Bingle, Head of ESG & Responsible Investing at Alpha, for more information.