The interest in sustainable or responsible investment, sometimes also referred to as ESG integration, has increased dramatically in recent years. That is obvious not least from the rise in media coverage and from the number of new funds that are being launched with these terms included in the name. Sustainable or responsible investment and ESG are often used interchangeably however but perhaps not enough attention is being paid to what these terms and what the concepts themselves really mean. How do we know that we are referring to the same thing?

This situation is further complicated by the fact that there is a lot of “greenwashing” around. Funds that have nothing to do with sustainability are being dressed up with clever marketing. Impact investing has become something that many managers now talk about doing. And portfolio managers are getting better at giving the right answers to questions about ESG integration, even if there is little substance behind those answers.


A simpler approach and one that is more difficult to fake might be to talk about whether the manager operates as if everything in the world around them is interdependent or not. Do they invest as if the significant global problems that we face today, such as climate change and social injustice, are everyone’s responsibility or do they see themselves as existing outside of society and therefore ignore these challenges when they make investment decisions?

Across the industry, there is a significant lack of clarity about what we are trying to achieve by being responsible investors and what represents success. In fact, it is impossible to measure the latter unless you have a clear idea of the former. Asset owners want practical solutions to the challenges they are facing. Often, they feel misunderstood by the investment managers they interact with who do not approach their problems with the same ownership mindset.

Return means something different for a pension fund, compared to a fund manager. So, when the two groups talk about “maximising returns”, there is often confusion around what sort of return is in question. While of course financial returns matter, pension funds tend to look for more holistic returns and see this as the responsible approach. The difficulty comes when their financial returns alone are used to benchmark their performance against peers.

More positively many asset owners and fund managers now agree on the fact that much of the thinking around investment is too short term. The requesting and sending of quarterly reports, measuring performance against benchmarks over the short term and charging fees on a quarterly basis all encourage the wrong sorts of behaviours. These factors establish an “us and them” relationship between fund managers and their clients.

Instead, a common understanding needs to be created between asset owners and investment managers so that they can better understand each others’ positions, build trust and mutually beneficial relationships. This means moving away from transactional interactions in which selling a product is the end goal. The situation today is that many clients don’t know how to be in a room with and relate to their fund managers. Strengthening relationships would cut through the greenwash and the doubt that currently exists in the minds of clients of the industry that fund managers do not act with their interests at heart. It would enable productive, open discussions in which clients and managers can together devise a more positive approach.


As investment managers are increasingly being expected to ask companies about culture and purpose — for example by the UK Financial Reporting Council and other regulators — there is a need for them to look inwardly too. There is a growing acceptance, accelerated by high profile corporate failures, that culture really matters when it comes to financial performance and the sustainability of that performance.

Investment managers are beginning to acknowledge that it would be hypocritical to ask companies to pay attention to the culture they are promulgating when they themselves are not doing this. Certainly, clients are starting to ask fund managers about their own purpose and culture. Many more RFPs today include questions about how the investment management firm runs its business and motivates its people. It is really important that fund managers spend time thinking through why they exist as a business, in whose interests are they working and what outcome they are trying to achieve.

Which again raises the theme of interdependence. To connect investment decision making to the external world requires fund managers to bring their whole selves to work and to consider what matters to them as people as well as investors. This will only happen when the culture at the firms they work for encourages this. The financial services industry as a whole has work to do in this respect. There is now overwhelming evidence that organisations with a clear sense of purpose have a stronger, more positive culture in which individuals feel empowered to contribute and do their best work. This also enables the formation of positive relationships with clients in which both parties recognise that they depend on one another for the best outcome.