Sunday, October 20, 2013

Opening Up Spaces for Innovating New Forms of Investment

On Friday past, I attended a conference on ESG in the Manager Selection Process hosted by Tony Hay and organized by Rachel Pine of Responsible Investor.

This Conference focused on Institutional ESG.  (ESG stands for Environmental, Social and Governance). During the wrap-up of this interesting all day presentation of perspectives, Tony Hay, Publisher of Responsible Investor, offered these two points, among others

  1. there are mixed messages circulating about whether ESG is stalled, or going mainstream, but nonetheless the conversation is continuing and gaining participants
  2. as the scope of conversation expands there is a growing need to bring consistency to the terminology
As a lawyer expert in negotiated investment, legal drafting and tax law, I am very in tune to the power of precise vocabulary (and also to the dangers of sloppy language). I am equally sensitive to the brain-numbing dullness of the vocabulary building process, so these twin challenges resonate very strongly with me.

I would propose that the ESGers need to agree on a statement of their mission and vision, and when I sort through the chatter, it becomes clear to me that ESG has twin missions.

One is to serve as the conscience of the public equities markets, and a stalwart against the rampant miscreant market manipulation associated with 2008 and other catastrophic financial market events.
Two is to promote institutional responsibility in the deployment, recovery and redeployment of Other People's Money entrusted to their care to sustainably realize fiduciary returns while contributing to a better world for the people whose money they have charge over.

The first mission, above, requires that the movement stay, as it has, within the existing default form of investment as financialized asset trading, and work as they are to increase transparency through additional disclosure and to improve accountability through increased shareholder activism.

The second mission, however, requires that they begin some new work. This is the work required to open up spaces where innovation can take place. The required innovation is new forms of investment that are purpose-built to achieve the twin goals of sustainably realizing fiduciary returns while building a better world.

One innovation may prove to be the Evergreen hypothesis. Other and better innovations may also be found, once the work is begun in earnest.  

First step. This work must begin in earnest.

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