Investment letter

The term ESG has historically been associated with the colour green. However, for many years it had perhaps been more appropriate to describe the investment sector as a grey area. A chasm emerged between investors’ ambitions and what ESG principles meant in practice which firms, knowingly or otherwise, had been able to exploit.

It had become all too easy for asset managers to exalt the virtues of their screening tools or benchmarks without ever having to reveal their underlying methodology or, more pertinently, have it scrutinised by experts.

Fast-forward to 2023 and, while some inconsistencies remain, the ESG space has become far better defined and regulated. Areas that were vulnerable to greenwashing are now fertile hunting grounds for law firms and regulators who deal strictly in black and white.

As investors, we welcome the upgrade in scrutiny as it places a greater emphasis on our due diligence process. We feel that non-financial analysis has become a critical route to identifying quality companies with sustainable business models.