What tea with the WI taught me about responsible investment

Late-breaking exam results: many of the City’s top fund managers have failed a vital test of ‘stewardship’ — defined for this purpose as ‘the responsible allocation, management and oversight of capital to create long-term value for clients and beneficiaries leading to sustainable benefits for the economy, the environment and society’. That mouthful comes from the Financial Reporting Council’s UK Stewardship Code; asset management firms seeking to become ‘signatories’ to the code were asked to submit essays describing their own investment principles, highlighting their approach to hot-button ‘ESG’ (environmental, social and governance) issues. Out of 189 applicants, 64 failed to reach the pass mark, while some major firms chose not to apply at all.

Absentees from the approved list include Schroders, JP Morgan, Goldman Sachs, Credit Suisse and the bond fund Pimco. Is London’s much-vaunted fund management community so delinquent in ethics that one third can’t pass a basic test? Or might it be the wrong test?

The truth behind this story is that the codification of ESG as a means of assessing the moral correctness of any proposed investment is still a muddle — and one that’s much exploited in the marketing hype of investment products.