The most recent Investment Association data, which revealed investors placed £100mn a week into ESG funds in 2022, must have made many DFMs ponder the size of the opportunity for their own businesses in this space.
And while some more recent monthly figures have shown outflows, the issue for those pondering the sustainability trend may be broader than the volatility of the asset class: it may be about the collateral damage if it goes wrong.
Baillie Gifford’s recent travails with Greta Thunberg are an example of this. The activist generated a ton of negative publicity for the Edinburgh-based behemoth when she pulled out of an event associated with Baillie Gifford and declared the firm guilty of “greenwashing”.
An irony not lost on Baillie Gifford is that the fund house didn’t actually book Thunberg for an event they sponsored, nor did they directly sponsor an event at which Thunberg was booked to be present.
Instead, they sponsored one literature event, and that event partnered with another and it was the latter event, which Baillie Gifford was not a sponsor of, that Thunberg was scheduled to appear.
On being told the event at which she was to appear was also partnered with an event of which Baillie Gifford sponsor was sufficient to have Thunberg withdraw from the event and brand Baillie Gifford guilty of “greenwashing.”
Apart from the obvious dent to the firm's sustainable investing product range, something which many may be happy to write off as being part of the usual cut and thrust of markets, is the potential cost to wider business.
Relationship managers making the rounds of their clients must have an answer prepared to this question, even for clients and potential clients that are not especially interested in sustainable investing.
Indeed such clients may be annoyed at a fund house engaging with a celebrity sponsorship of this kind if at the same time the core investment strategies are performing less well than might be expected.
In the same way a voter may deride a politician for focusing on what they believe to be ephemera at a time of perceived national crisis, so an investor in a conventional US equity fund that is losing money may contemplate why his asset manager has the time to associate with celebrity activists at book festivals while the fund is heading south.
Such a reaction from a client may be less than rational, but bear markets do prompt reactions from some clients that are less than logical, and create an opportunity cost for fund houses to bear.
With that in mind, firms seeing sustainable investment products as the road to new riches in a world where passives are gaining ground may need to careful of the unintended consequences of seeking to be a champion of the ESG universe.
