In my opinion a much bigger catalyst for change and faster action is made by investing with fund managers who are looking for positive impact and who will use their vote and voice to influence change.
This can’t come about from passive funds since by-and-large they are not interested – they just follow an algorithm – whereas a fund that sets out to invest in the businesses that are making a positive difference and is using its leverage to force the pace of change will create change.
Direct engagement and the threat of divestment is a far stronger tool.
Such managers will be taking measurement seriously, they will be employing analysts to do the heavy lifting and they are the influences who lead the rest of the industry.
And that does not come about with a passive approach. Passivity seldom influences change unless it is backed up with cast iron boundaries and with a very strong conviction and that is certainly not something that the passive ESG providers can claim at the moment.
So in short, yes ESG has to be active to truly make a positive change. But the good news is that pensions and funds have the potential to change the world – and for the better. Now if only someone could tell that our new Prime Minister Liz Truss...
David MacDonald is founder of impact-focused financial planner The Path
