20 January 2025
As we look into the New Year it is impossible not to think about the implications that our changing political landscape, internationally, will have on sustainable investment. In some ways, this is nothing new. Pushing back on sustainable investment, and ESG more broadly, has already been a core component of the ‘war on woke’ and sadly it is having an impact. Throughout our industry my counterparts have been impacted by legislation, regulation and political pressure that has limited their activities to those that are the most clearly financially material in the near term. In so doing, it has badly impacted upon our industry’s ambition to drive much needed real-world change.
With rumours of changing rules regarding the filing of shareholder resolutions in the USA (a key engagement tactic for North American companies), expectations of an attack on the EU’s progressive environmental and societal regulatory agenda and, closer to home (despite some positive noises from the new Government), a proposed weakening of sustainability factors in the UK Stewardship Code it feels that investors, like us, who want to drive change will be facing headwinds of increasing strength in 2025. This is bad news.
This push back is also pertinent because of the nature of sustainable finance itself. From climate change to biodiversity and modern slavery to mental health, most of the issues that we care about are systemic. This means that, if left unmitigated, they will affect everyone and everything. They are – by their very nature – risks that are undiversifiable and unavoidable. Therefore, the only path to avoiding their negative impact, is to change them through positive actions.
But delivering this change in an era of political push-back is easier said than done. Systemic risks need a systemic response, and the classic investor response has been to push public policy makers to take the lead. Whilst effective, (if you can change the rules of the game, you change how every player plays it) it is clearly not a viable tactic in some crucial geographies right now. So, we need to stop looking to others and push ourselves.
In the absence of positive policy makers, I believe that we need to ‘double-down’ on the other classic investor approach, collaboration. This is hard to do in a political environment that seeks to alarm us with allegations of firms acting as a collusive climate cartel. But this should not stop us. Amongst many other publications and legal opinions, the PRI’s ‘Fiduciary Duty in the 21st Century’ and ‘A Legal Framework for Impact’ should not only reassure us that pushing for change is legal, they should scare us that a failure to try and build a better world is – in many ways – acting against the best interests of our clients. If we resist those that seek to divide us by staying together and sticking to our purpose and convictions, we can still push for change in a way that is powerful.
But to tread this path we will need courage, conviction and assistance. We will need investors that care to support the purpose driven asset managers that stand up and say (and do) the things that need to be said. Continuing to idly stand by those that refuse to be an agent for change will hold back our sectors’ potential.
We will also need the support of our industry bodies, from the Investment Association to the UN-backed Principles of Responsible Investment, who can use their size to stand alongside those who are speaking out. They need to continue to support those who are trying to deliver on the potential of our industry to be a force for good and not bow down in the face of threats.
2025 is clearly not going to be easy, but we should not hide from that fact. The challenges should give us motivation to go further and be better. In 2025 I will be keeping the following words of another historic political leader, Marcus Aurelias, (as made popular by Ryan Holiday) front of mind:
The impediment to action advances action. What stands in the way becomes the way.
If we find motivation in the challenge, and, as an industry, be strong in the face of those who try to make us weak, we will not only build a better investment industry, we will be properly serving our clients.