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Responsible investing has never been more important – three ways that the finance community can step up

ESG investors are showing that financial returns and responsible principles can go hand in hand.

Depending where you stand, ESG investing - where decisions are based on good environmental, social, and governance principles - is booming, under attack, or never more important. To cut through the noise and challenge the responsible finance community to step up, I enlisted Chat GPT’s input for my speech at last week’s ESG investing awards.

While its artificial sense of humour could only conjure “Why did the ESG investor cross the road?”, it provided three remarkably accurate observations on the context right now.

The world is facing unprecedented challenges, from climate crisis to corrosive social inequality. Government action alone won’t solve these issues; individuals and organisations must also work to create positive change.

Responsible investors globally are already implementing more sustainable practices and demonstrating that financial returns and responsible principles can go hand in hand.

But there is still much to be done to ensure we are truly accountable for our impact on people and planet, and that we leave a better world for future generations.

Now we know ChatGPT’s thoughts, here are a few genuinely human observations.

Having worked in this field since 2008, I'm astonished to see how controversial ESG has become in some quarters in recent months. Last year, former US Vice-President Mike Pence gave a speech in Texas criticising ESG investing, inciting a wave of attacks on ‘woke capitalism’ from the Republican right, although there is now increasing push back.

At ShareAction we believe that harnessing the power of investment is vital to tackle global challenges from the climate crisis to social inequalities. We work with many responsible investors who share this belief. There’s a role for all of us to champion the potential of responsible investing to shape a better future. To do that, we need to acknowledge that ESG is a work in progress and play our part in raising it to the next level.

First, we need to address the significant problem of greenwashing. Financial supervisors only have so many eyes. To protect ESG credibility, every self-respecting investment house and fund should acknowledge the temptation to overclaim, and combat this with robust safeguards and governance.

Second, let’s recognise what’s motivating the human investors who are selecting responsible and sustainable funds, including millions of working people with pensions assets and individuals who invest on the stock market. In my experience, they are expressing their desire to support companies that try to protect people and planet. To do this, many people are open to potentially giving up a little financial return - not because they are overwhelmingly altruistic, but because they are human, with families and friends who they dearly want to protect.

There is data to back this up. A recent survey of around 1600 people holding US index or Exchange-Traded funds found the overwhelming majority would be willing to sacrifice profits at least some of the time to benefit employees, society, or the environment, while just three per cent would never be willing.

Third, we need to reimagine the dominant theoretical and legal conception of an investor as a single-minded profit junkie. Of course, people want excellent financial results – but they have other important priorities too. If the law needs to change to allow fiduciary investors greater freedom to acknowledge, engage with, and act on their clients’ non-financial priorities, then that is what should happen.

If we can do all this, I’m confident that it will help power a new wave of authentic and ambitious responsible investing that truly lives up to the expectations of the people it serves.

And for anyone still wondering about Chat GPT’s punchline – it’s to get to the carbon-neutral chicken on the other side, of course.

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