These days, it is rare to read business news without coming upon an Environmental, Social, and Governance (ESG) related story. While the overall trend is toward developing deeper ESG lenses when it comes to investing, some “Red”-leaning states have been implementing anti-ESG initiatives. For instance, in January, West Virginia State Treasurer Riley Moore announced that the state would end the use of a $1 billion BlackRock liquidity fund over the firm’s push for climate-focused investment strategies, including embracing ‘net zero’ investment strategies that the Treasurer believes would harm the coal, oil and natural gas industries.
This has left asset managers in a tricky situation, and many have subsequently become fearful about speaking publicly about their ESG strategies. If they lean too far into the pro-ESG bandwagon, they risk losing investors who think the use of an ESG lens inhibits money-making efforts or is simply a phony political stance. But if they go too far in the other direction, pulling back after years of touting their adherence to ESG guidelines when making investment decisions, they may start to lose clients who value ESG initiatives. They may also find that their new rhetoric is in stark contrast to their marketing material messages and will have to change how their portfolio managers are actually implementing ESG guidelines when investing.
So how do asset managers continue to speak to the media about their views on the importance of ESG given the nuanced debate? Here are a few ideas to keep in mind.
1. Know the laws and regulations
ESG regulations are changing at breakneck speed. In Washington, The Securities and Exchange Commission (SEC) has been charging and subsequently fining many banks and asset managers for “greenwashing” their ESG-focused investment offerings, which have become increasingly popular–but often lack accountability. In fact, in May, the SEC fined the investment management arm of Bank of New York Mellon Corp. a sum of $1.5 million for misleading claims it made about its funds that use environmental and social criteria to pick stocks. And in June, the SEC began investigating Goldman Sachs’ asset management division over the four funds it manages that have clean-energy or ESG in their names.
Currently under review at the SEC is proposed amendments to rules and reporting forms that would promote consistent, comparable, and reliable information for investors to view when considering ESG-based funds and advisers’ incorporation of (ESG) factors onto those funds. The proposed changes would apply to certain registered investment advisers, advisers exempt from registration, registered investment companies, and business development companies.
If asset managers focus on keeping clients and the media informed of the latest updates to the rules and regulations, they can then speak intelligently about these initiatives to reporters, while avoiding offering too much opinion. Keep the focus on what’s new, and why, and how it might change the way asset managers invest to keep in line with the laws and regulations.
2. Review all ESG initiatives and policies within the company.
Do they still make sense? Does the asset manager want to stick to the belief that investing with an ESG lens increases profits? Or do they believe that it’s the right thing to do, regardless of profits? Coming up with a clear and explicit reason for why an ESG lens is being used is helpful to clients, regulators and the press, and helps the manager avoid the risk of coming under scrutiny for hypocrisy or possible future investigations and fines.
For its part, BlackRock is now backpedaling on its fossil fuel statements and initiatives. In response to the backlash and loss of business, BlackRock representatives met with Texas state leaders in an effort to highlight the money managers’ ongoing fossil fuel investments. BlackRock CEO Larry Fink also recently wrote a letter flatly stating that the firm does not pursue fossil fuel divestment.
Now is also the time for company management to have an open and detailed conversation with the investing team about how they actually incorporate ESG into their investing strategies. Has the team been able to measure results? Do they want to continue the same course they have been on, or change direction? Is the firm still compliant with the new laws and regulations coming out? Is any greenwashing of portfolios going on? Management should do a deep dive into the details of what is being done on the investing front in practice, beyond the marketing hyperbole.
3. Leadership needs to get involved.
It’s time to take a good hard look at the company’s ESG initiatives and investing standards and decide if the company, as a whole still, believes in them. Even within the company, views regarding ESG may vary, as will client demands. Leadership needs to set the tone from the top and set out a long-term vision, then work to bring everyone on board with that vision, rather than just trying to keep up with the ever-changing political swings.
4. Update all marketing materials and website.
Marketing materials need to reflect management’s decisions on ESG initiatives and any changes in how the company focuses its ESG strategy to keep up with the new rules and regulations. Review all language being used in marketing material and on the company website, and within RFPs. Is it time to rebrand how the company addresses ESG concerns? Or is there a way to soften the language to be compatible with company ideals, while not alienating some clients?
In some cases, it might be best to not make any public changes to marketing materials and websites until some of the dust settles and recommendations become regulations that are enforced. In the meantime, company’s leadership should work with their asset management PR or marketing PR services teams to plot out a path to a clear ESG communications strategy, so that the firm is not left on the back foot when it comes to changes in a strategic direction.
5. Decide on a media strategy.
Once any changes to ESG investing criteria or initiatives within the firm have been made, and the language has been finalized, leadership needs to decide how vocal it wants to be about it to the public and to the media. Should spokespeople be out in front of the media, commenting on every change in rule, regulation, or public sentiment, and how the company is reacting to it? If not, leadership needs to make this clear to all spokespeople, so they know exactly what sort of comments they should or should not make to reporters. Or if they should accept interviews at all, during these volatile times.
6. Prepare your spokespeople.
If the organization decides to have a proactive media strategy, it should consider implementing media training initiatives to help spokespeople feel comfortable speaking about these topics to the press, without being caught off guard or flustered. Media training can also show spokespeople how to deflect questions they don’t want to answer without saying “no comment.” Spokespeople should figure out the point they want to get across, before the interview and decide what topics they won’t speak on, so as not to be caught off guard when a reporter starts to ask probing questions.
Overall, the guidance on ESG initiatives and asset managers’ marketing approach needs to come from the top of the firm and filter down throughout the company. Asset managers don’t want to find themselves in a position where different spokespeople are offering differing or opposing opinions to clients, regulators, or the media, which may leave both the spokesperson and the company in a regrettable situation. This past May, HSBC Global Asset Management suspended its global head of responsible investing, Stuart Kirk, because of comments he made at a Financial Times conference. During his presentation, Kirk accused central bankers and policymakers of overstating the financial risks of climate change in an attempt to “out-hyperbole the next guy.” His statements were shocking to many, even though the presentation “Why investors need not worry about climate risk” had been approved two months earlier and publicized on the website in the run-up to the event.
Still, HSBC management sought to distance the firm from Kirk’s remarks. He officially resigned in early July. Such events could have been avoided with more top-down direction from the C-suite on where HSBC stands on ESG.
Clearly, the issues and debate surrounding ESG are not going to go away any time soon. That is why it’s key for asset managers to stay on top of this issue and have a plan ready, in case they become the target of media speculation or are called upon with requests for comment.