What ESG can learn from ABS

Image of hands grabbing principles

As investor demand for sustainable products escalates, asset managers have been keen to showcase their ‘green’ credentials. But with ESG investing soon to become the norm, brands will need to find another point of difference: who they really are.

ABS. Not asset-backed securities but anti-lock braking system. When was the last time you saw a car ad that focused on ABS? We’re guessing it’s at least a decade ago. What was once an innovation celebrated by a few car brands is now standard equipment offered by all. (ABS was made compulsory in the UK in 2004.)

One could also mention touchscreen phones, mobile banking and sugar-free fizzy drinks as examples of the exceptional becoming the everyday; of how brands have had to refocus their comms away from undifferentiated product features and back towards their brand purpose, their USP, and how they relate to the needs and lives of their customers.

Sustainable is powerful

So to sustainability. It certainly sells. Despite making up just 16% of the market, products branded as ‘sustainable’ accounted for an eye-popping 55% of US retail market growth between 2015 and 2019[1]. And, in the UK, consumer spending on products promoted as ‘ethical’ has rocketed tenfold over the past two decades[2].

Of course, businesses clocked onto this quickly. After the high-profile 2015 Paris Agreement, more than 69% of UK marketing professionals were instructed to ramp up their ESG credentials[3]. The product didn’t necessarily change. But the marketing did. Today it seems every brand has jumped on the sustainable ‘brandwagon’.

We’re seeing it happen in asset management too. Assets under management in what could be called ESG investing (although, as we’ll see, terminology in the sector is vague and inconsistent) are currently worth £40 trillion[4]. And the trend will only grow, with Morningstar identifying a record 333 sustainable offerings launched to market in 2020 alone.

From side order…

Yet some asset managers still see – and communicate – ESG as an optional extra; just as ABS used to be offered on only a few of a car’s models. Sales presentations try to tick the sustainability box with an ESG slide at the back of the deck. Perhaps more tellingly, many of the world’s biggest asset managers still have a separate section for responsible investing on their websites, instead of weaving it throughout the fabric of their philosophy, process and products. And, as described above, no-one seems to quite know how to describe the investment solutions they offer. Responsible, sustainability, ESG, ethical, impact… take your pick.

Presenting ESG as a side order to go with the main dish is unsustainable (literally), as ESG rapidly becomes the next normal in asset management. By the end of the decade, it will no longer be a differentiator.

To main dish

So investment companies need to inject sustainability into their brand DNA now. But it shouldn’t be their brand. It’s impossible to own, even for the various asset managers who claim to have pioneered it in one form or another. It may be tempting to badge one’s brand as the sustainability superstars. But it’s self-defeating in anything but the short term. You could soon find yourself cut adrift on a sea of green sameness.

Differentiation comes from the business (what it does, how it does it, its philosophy, its people, its history, even its country of origin). When that point of difference is uncovered it can then be applied to responsible investing. How does who you are make your approach to ESG the best?

And it’s good to remember that the principles behind responsible investing held true even before the term was coined. The S and G of ESG are often overlooked – certainly in brand comms – but they’ve been well-known drivers of investment performance for decades. Well-run businesses that have a positive relationship with society have always done well.

Your business has almost certainly been embracing these principles, but perhaps without articulating them. Now is the time. And to do so beyond a section on your website or a slide in your presentations.

ESG starts with YOU

So don’t put the (anti-lock) brakes on your brand through either tokenism or pretending to be something you’re not. Instead, look for the powerfully simple truth at the centre of your business and see how it can enhance responsible investing – rather than being defined by it.

Powerfully simple is what we do at Arthur London. We’d love to help.

[1] Kronthal-Sacco, R., Whelan, T., (July 2020), ‘Sustainable Market Share Index’ (online). Available at: https://www.stern.nyu.edu/experience-stern/about/departments-centers-initiatives/centers-of-research/center-sustainable-business/research/research-initiatives/csb-sustainable-market-share-index

[2] Evans, J., Hodgson, C., (November 2020), ‘Green gold: how sustainability became big business for consumer brands’, Financial Times, (online). Available at: https://www.ft.com/content/ce523ca1-c8c2-43e7-86ad-ffa5d6605d2c

[3] Evans, J., Hodgson, C., (November 2020), ‘Green gold: how sustainability became big business for consumer brands’, Financial Times, (online). Available at https://www.ft.com/content/ce523ca1-c8c2-43e7-86ad-ffa5d6605d2c

[4] Foubert, A., (June 2020), ‘ESG Data Integration by Asset Managers : Targeting Alpha, Fiduciary Duty & Portfolio Risk Analysis’, Opimas, (online). Available at: https://www.opimas.com/research/570/detail/

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