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Values-driven and sustainable culture in the Investment Management industry: This is still work in progress …

Posted by Pierre-Yves Rahari on 23rd February 2021

The recent interview with Neil Woodford, who plans to resume his portfolio management career by launching an investment fund[1], was met with a lot of negative press. It has reawakened the spectre of an Investment Management industry at odds with the notion of fairness, integrity and commitment to investors and other stakeholders alike.

On this account, it is tempting to join the chorus and blame the investment industry for its inability to reform and behave properly. Equally, it is also tempting for industry members to lose courage and to throw the towel with despair: Are we doing enough and/or will we ever get to fully embrace sustainable and inclusive culture?

On this binary win-or-lose spectrum, we believe there is a more pragmatic position to explore somewhere in the middle, which is to take stock of the progress made so far; assess the complex and sometimes conflicting dynamics that the industry is facing on this journey; and take solace in the numerous options and assets – so to speak – available to the industry when building a much-desired values-driven and sustainable culture.

Here is a step-by-step approach that we propose to keep us going on this long journey:

Celebrating the progress made so far

When you look at the investment industry, a number of inclusive and sustainable initiatives have been launched over the last few years. To name a few: Diversity-and-inclusion programmes; Gender Pay Gap regulations; launch of numerous ESG[2] products and taxonomies; value-for-money and transparency regulations; board-and-governance regulations; emerging-and-diverse talent recruitment and training programmes; and so on and so forth. Has enough been done? Maybe yes, maybe not.

For example, the Gender Pay Gap has not yet been filled; the first batch of value-for-money reporting is patchy at best; there are still websites featuring a predominantly white and male board and executive management teams. However, it is clear that the train has left the station and that industry developments and regulations alike are trending towards an inclusive and sustainable cultural model in the industry.

Appreciating the complexity facing the industry

To manage expectations, it is important to place this desired culture change in the context of the transformation pressure facing the industry. There again, to name a few: Changing investors’ needs, values, demographics, behaviours and expected investment outcomes; changing revenue and investment models; emergence of new asset class and funding mechanisms; emergence of value-driven leadership models, alongside the ESG regulatory and reporting pressure; geo-political changes affecting the regulatory and power dynamics; a global pandemic that impacts all aspects of the industry operating model; emergence of competing models to finance the economy; emergence of competitors unburdened by cultural or operational legacy models; emergence of change-accelerating technologies, and so on and so forth. Against that background, the challenge for the industry is to spin these various plates, while encouraging, almost forcing the emergence of a model which balances the interest of all stakeholders, and not that of an existing happy few only.

Designing our own compass

At the risk of oversimplification, there is merit in revisiting the well-oiled urgent-vs-important matrix. There is no doubt the business imperatives pertaining to our organisations will find a rightful place on such a matrix: What development strategy should we follow; what markets should we approach; are we passive and/or active managers; what share classes to launch; which technology to adopt; who should we partner or merge with? This forms the first step to our model(s). But to be truly sustainable, the challenge is to overlay or embed in this matrix the model that ensures our organisations balance the interests of all our stakeholders: Are we truly supporting everyone’s interests; are we truly diverse across the organisation; are we infusing the same sense of urgency in the E, S and G components of our ESG models; do we stand to scrutiny in comparison to other industries that are equally passionate about sustainability? If we raise up to this challenge, we may be on the path towards an authentic value-driven model in the industry.

Boldly taking action

The devil is always in the details. Once we have designed our policies and frameworks, we must back these up with solid implementation plans. Which infers taking stock and re-adjusting plans on a regular basis. With that, there are ways to stand out in this process:

  • Be inclusive: A sustainable model is not the exclusive ownership of a happy few or experts. Instead, we must include as broad a constituency as possible in the design, implantation and reviews of our models
  • Be vocal: We must speak out, when things go wrong, but equally when things move in the direction of sustainable change.
  • Play the game: Prepare that report; adopt that regulation, even if it seems imperfect; every step counts
  • Explore opportunities: Reach out to that neo-bank; hire that music major; test that trading system; visit that farm; speak to politicians; opportunities are all around us
  • Repeat: Rome was not built in one day. Getting to our destination will be an iterative journey that will see us repeat and adapt this process on a regular basis

 

[1] “Neil Woodford says sorry as he reveals shock return,” Ignites Europe, 15 February 2021

 

[2] ESG: Environmental, Social and Governance