Twenty-plus years ago, when responsible investing policies were new (and ESG was referred to as SRI), I was drawn into a revealing exchange at an investment committee meeting of a large UK corporate pension plan to which I was a consultant. An external investment management firm was delivering their regular portfolio overview. The portfolio manager and client relationship manager sailed uneventfully through items 1 to 6, and arrived at the final topic, an ESG update, which had recently become a standing addition to the agenda for these manager presentations.

The relationship manager explained that the firm was making great strides and had even hired a couple of ESG specialists (a move that was still fairly unusual at that time). Job done, the two presenters started to pull together their papers and prepare to leave. But, in an unexpected twist, my client had questions. They probed how the specialists worked with the portfolio managers, and how they were able to influence decisions. The answers were a bit vague, so they pressed some more. 

Eventually, finding that this was starting to go in circles, I asked the portfolio manager (who had not joined in this part of the discussion at all so far) if he could tell us the names of the two individuals who had been hired. A shake of the head: sorry, no. Which pretty clearly told us that there was a long way to go before their influence was felt in the portfolio. 

I tell that story not to embarrass the firm in question – whose ESG capabilities today are strong – but to highlight the difference between having a policy and caring about something. This pension plan had essentially the same SRI policy as just about every other leading UK pension plan at the time (basically: “we take ESG factors into account to the extent we think they have a financial impact”). But the implementation of the policy was completely different. They didn’t just go through the motions to satisfy the legislative requirements of the time. They probed and tried to understand what was really going on in their portfolios. They cared.

Caring is the difference-maker

This distinction matters today, as ESG moves into the mainstream. Done right, this can help to direct the tremendous power of markets toward the creation of a more sustainable economic model, toward building value over the long-term and not just the next earnings cycle. But there is a real threat that greenwashing could turn the whole process into a non-event or, worse, into a distraction that prevents necessary regulatory steps from being taken. And which of those two versions of the future wins out may depend largely on how much people actually care.

Admittedly, caring alone will not get us far. Well-designed regulatory steps, such as requiring disclosure of material environmental and social impacts, are essential if markets are to correctly judge and properly value business activities.

Regulation alone, though, can be ineffective, and rules can too easily pile up with limited effect, leading to nothing more than box-ticking. The real difference comes when people within the system, like my client above, care about and engage with the disclosures. Caring makes greenwashing both more difficult and less worthwhile.

This is the human element, and it should not be overlooked. Rob Lake recently made this point well when he asked “have we lost something by burying the acknowledgement of values? The outstanding leaders I know in responsible investment are in fact all driven by their personal values, their commitment to sustainability and their desire to make a positive difference in the world.”

The point holds at many levels. 

People in general need to care. Markets are powerful, and we need that power. And while markets themselves don’t care, they do respond to what people care about (what people really care about, of course, not just what they say they care about.) So public interest matters.

But there are several leverage points inside the financial system itself:

People working at asset owners need to care. Asset owners – the big pension funds, sovereign wealth funds and other institutional pools of capital that represent the bulk of the world’s investment assets – call the tune to which the financial world dances. My client in the story above pushed the asset manager, encouraging them to lean in turn on the corporations in which they invested. If asset owners just go through the motions, everybody else is likely to follow their lead.

People working at asset managers need to care. The importance of culture for investment management organizations is rarely given the attention it merits. A culture that values only profitability sees no further than the short term, discouraging individuals from doing the right thing, leading to greenwashing and worse. A culture that sends a clear message of “it’s OK to care” reinforces individual values, supporting an authentic connection between the ESG program and the investment proposition of the firm. 

People working at corporations need to care. And the same goes for every other type of corporation. In any business, if personal values are absent or suppressed, ways will be found to skirt the intent (if not the letter) of environmental and social regulation. Culture matters. Caring matters.

People creating public policy need to care. Caring makes a difference not only in the application of regulation, but in its creation too. Sybrig Smit of the New Climate Institute observes: “Regulators and standard-setting initiatives must find ways to distinguish and segregate climate leadership from greenwashing, to support ambitious actors to innovate and accelerate decarbonisation.” Bending too easily to corporate lobbying can prevent that from happening. Policymakers who care are more effective in hitting the right notes.

The list goes on: consultants, data and analytics providers, index firms and a long list of others play key roles in the modern investment world. Individuals throughout these organizations – if they care enough – can do their bit in keeping markets honest, in calling out greenwashing, in identifying what isn’t working and pushing for more, in keeping the key questions on the agenda. In every part of the system, the people who care will make a difference. 

And if all you really want is the Dr. Seuss quote in full, here it is.