The Garrulous Jay – “Not At The Table, Darling!”

There was a time when matters of politics and religion were deemed not to be appropriate topics for conversation at the dinner table in polite society.

There is now a debate – reframed around politics and morality – as to whether the same taboo should still apply in the world of investments. It lies at the heart of the increasing focus on environmental, social and governance (‘ESG’) issues.

The task of the fund manager has historically been to allocate capital to investments that will maximise the risk-adjusted returns on behalf of their clients. Companies that generate good profits and good growth make for good investments. The ‘hard’ levers of financial risk and return should determine which investments make the most sense from a capital allocation perspective, and it’s not for the fund manager to judge on the basis of other ‘softer’ factors.

In today’s world of stakeholder capitalism and ESG investing, however, many fund managers believe it is absolutely incumbent upon them to consider not just the financial returns that a company will make, but how it generates those returns and the external costs incurred to the planet and people.

My own view is that there is in fact a false dichotomy here, now that stakeholder/ESG genie is out of the bottle. Every investment decision taken by every fund manager is in some way framed by politics and morality, and to pretend otherwise is therefore pointless.

What has changed rapidly in the investment world is the move from this being implicit to it being explicit. Fund managers are increasingly expected to state their position and disclose their performance on non-financial metrics, the same way as electrical goods are now required to carry energy efficiency ratings and companies have to state whether or not their packaging is recyclable.

I derive a sense of optimism from this trend which I think reflects a more fundamental shift in the relationship consumers want to have with the companies whose goods and services they purchase. I see it as being central to our fight against climate change, pollution and global resource depletion.

So the more questions I have from clients about these issues the happier I am: feel free to bring them up, even at the dinner table!

The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise.  You may get back less than the amount invested.