In the first episode of our TP Talks series, we are joined by four private clients advisors: Isobel Morton (Macfarlanes), Amy Blackwell (Acorn Capital Advisors), Kelly Noel-Smith (Forsters), and Matthew Braithwaite (Wedlake Bell). 

Our guests discuss what is driving the sustainability agenda within the private sector and what they think it will look like in the year ahead.

Transcript

Introduction

Honor: This month, clothing brand Patagonia called on the corporate world to act bolder and quicker on their sustainability commitments. It’s CEO Ryan Gellert said that while large corporations are good at ‘talking the talk’, they need to do more to ‘walk the walk’. 

For more than two decades, Patagonia and its founder Yvon Chouinard, have made a name for themselves in the sustainability world, setting aside 1 percent of their revenues to donate to environmental causes, as one example. But while many companies – and their owners – are keen to do more to make the economy greener, cleaner, and more sustainable, communicating that positive impact is not always easy.

In 2020, airline Ryanair was called out for so-called ‘greenwashing’ when it released an advert claiming it had the UK’s lowest emissions. The ad was shortly banned. So, if you're a businessowner, sitting at home, eager to do more: where do you start? How radical do you need to be? And perhaps most importantly, how do you ensure you don’t get it wrong?

Isobel: And those who have the most influence and the most capital should be thinking about how they can use that capital.

Kelly: Again, that’s where you need to be positive and hopeful and say that people will continue to be ambitious and take a robust approach to sustainability.

Amy: And you can make a really strong argument that investing sustainably in a planet that will still exist is, ultimately, in the wellbeing of the beneficiaries.

Matthew: The profile raising of these issues through COP26 and it being far more prevalent issue in the news means that there is a greater desire for people to affect good.

Honor: In this podcast, we’ll hear from our guests across the private client sphere, from legal to financial advisors, about their thoughts on sustainability in business and the steps individuals can take to help tackle the climate crisis thoughtfully.

For those of you that are new, ‘TP Talks’ is a podcast series by the leading communications advisor Transmission Private, which advises many of the world’s most successful people, their business, and their family offices. Make sure you stay with us.

Responsibility

Honor: Our own research from the third quarter found that 70 percent of the public believe UHNWIs should do more to combat climate change. This result appears to capture the sentiment that those with excess resources have a responsibility to pay more tax in solving societal challenges, like climate change and Covid-19.

Matthew: I think nobody can say that they can’t do anymore, I think it’s important to keep striving to do more.

Honor: Matthew Braithwaite is a partner at Wedlake Bell where he advises a range of high-net-worth individuals and families on the establishment and use of trusts and other wealth holding structures. 

We asked him if he felt his clients could and should be doing more to reach the target of net-zero.

Matthew: You can feel you’re ticking the box by having an ESG investment portfolio, but actually on a day-to-day basis, how are you living your life – are you still enjoying those trips abroad, using aeroplanes. Even the leaders attending COP26, there is some scepticism about their actual integrity over these issues and reaching net zero.

Honor: Today, the public expect successful individuals to contribute personally to solving these problems, so any activity that appears to show excess wealth being spent on lavish and environmentally damaging activities can have strong reputational implications for ultra-high-net-worth people. 

Amy Blackwell, of Acorn Capital Advisers, advises her clients on philanthropy, impact strategy and multi-generational wealth. She has worked with families to create philanthropic strategies and integrate impact investing into their portfolios. What did she feel was the expectation the public has for family offices and wealthy individuals.

Amy: I think what trustees forget is that there is also an element of responsibility for the wellbeing of the beneficiaries. And you can make a really strong argument that investing sustainably in a planet that will still exist is, ultimately, in the wellbeing of the beneficiaries. 

 bI do think there is a role in thinking about what ESG means to a family, family business, what it means to the family office. It’s not enough just to put it in your investment pot, you really need to think about purpose and align it across the whole structure of influence the family has.

Honor: Amy made a poignant remark about what she believed was the purpose of wealth.

Amy: I do believe that families have a responsibility to look at wealth as a tool and not as their identity. People are not born knowing how to use a tool, they need to be taught, and I think that there is a responsibility for families to professionalise the way they manage their wealth, because reputation in today’s world of wealth discrepancy is a huge risk.

Honor: Isobel Morton is the partner at Macfarlanes where she advises individuals, family offices and trustees on tax, trust and succession issues. She is responsible for the firm’s strategy relating to ESG, and is also chair of the ESG steering committee which advises clients on sustainability matters and formulates policies for the firm’s internal operations. 

It’s become clear that disparities lie between large corporations and smaller family and non-family businesses, so we asked Isobel if she felt wealthy families and individuals were doing enough to entrench the ESG agenda and wider sustainability initiatives into their organisations, and if they had the obligation to do more.

Isobel: My personal view is...absolutely. If you accept the best available science from the IPCC report, we are all in this together. And those who have the most influence and most capital should be thinking about how they can use that influence and capital to help us all find a solution to this climate crisis.

Honor: So, for those, generally, who are still reluctant to incorporate sustainable practices into their businesses, what can you do to convince them otherwise? The idea is that, if you give clear metrics on board diversity, or emissions reductions goals, and include that in executive pay, companies will succeed in reaching their ESG targets, right?

Isobel: Yes. Tying executive pay to ESG is still a fairly new and fairly niche approach, but increasing. But it certainly shows that it is taken very seriously. And, of course, it is a great motivator for people to take action. That has moved the needle on ESG criteria in the past.

Honor: A silver lining of the Covid-19 pandemic was the development of ESG from simply a sub strand of business to an almost guaranteed topic of conversation in the boardroom. And, a common thread between all our guests was the acknowledgement that the ESG agenda was being driven by one group in particular – young people.

Young people and ESG

Kelly: I think that follows on from the previous question, in that pressure for change is coming increasingly from younger people – so-called millennials – moving into senior positions, management positions.

Honor: Kelly Noel-Smith, of Mayfair law firm Forsters, heads up its Sustainability Board and is the firm’s CSR Partner. Kelly specialises in advising wealthy individuals and families on tax and succession issues, whilst also advising on the creation and operation of family offices to ensure wealth preservation and good family governance.

Kelly: They are carrying out quite rigorous scrutiny, evaluating the firms they are working for/with etc. If your values don’t align with theirs, they’ll vote with their feet and go elsewhere.

Honor: This was a view echoed by Matthew.

Matthew: It became very apparent that the incumbent generation (typically Millennials and increasingly Gen Z) were more focused on values that weren’t epitomised in financial attributes, it was looking more beyond the investments and asking deeper questions about the ethics around investments.

Honor: Funds are realising they need to meet consumer demand by declaring their ESG strategies. This, in turn, has led to companies realising the need to publish their impact, underpinned by real KPIs. Young people have the influence to push the agenda forward, so what can we learn from them? 

Carrying out ESG fairly and professionally is a requirement for many employees these days, so, as Amy Blackwell describes, companies making mistakes is all part of the process.

Amy: Next gen and millennials love that because they are very public about learning from mistakes – they share them on social media, they talk about what went wrong, there’s no shame in it. I do think ESG has different priorities within different groups. 

But I do think, by and large, that younger employees will look for honesty, and they will call out what they don’t believe to be true. They want transparency, they want people to have consequences for their actions, and they want to believe they are working with people who mirror their values.

Honor: The issue of transparency is one we spoke about with Isobel at Macfarlanes.

Isobel: This is a very challenging area to get right, there needs to be a bit of give and take.

Narrator: She maintained that as long as companies are consistent and clear on their messaging, making some mistakes is allowed.

Isobel: But I think the best way of positioning it is to just be as open and transparent as possible. And your transparency can include that you’re not perfect. Nobody is expecting perfection but they are expecting transparency.

Honor: So, the pervasiveness of ESG is there. But is the genuine interest? One might look at the current landscape and wonder if this shift to sustainability by family businesses and wealthy individuals is a result of pressure from these younger generations, or whether it has come from organisations’ own personal ambitions. 

Jumping on the bandwagon?

Honor: Matthew thinks positively of individuals and their businesses.

Matthew: I think there is genuine interest, and I think the profile raising of these issues through COP26 and it being a far more prevalent issue in the news means that there is a greater desire for people to affect good. 

But increasingly in the world, it’s quite apparent that in order to do business in the future you also have to be exhibiting that trait. In order to do good business, you have to be demonstrating that you have that focus.

Honor: COP26 has no doubt encouraged conversations around the environment, but is the uptake of ESG by businesses and offices a case of ‘jumping on the bandwagon?’ Here’s what Kelly Noel-Smith had to say. 

Kelly: I think there is more genuine interest than not – as long as we’re all moving in the right direction. I think I’ve noticed particularly in the last few years the tightening up of reporting requirements, so it’s becoming mandatory, it's becoming very data driven. I think it’s going to be impossible to greenwash. Especially after COP26. I think legislation will come out of that to stop it happening. 

Honor: One topic we spoke about with Amy Blackwell was the increasing necessity to enact ESG truthfully and ethically. For many, it is increasingly being seen as a box-ticking exercise there to ensure they’re making everyone happy – whether that’s employees or the general public. But rules are being tightened and we will no doubt see more action against ‘greenwashing.’

Amy: So when you talk about box-ticking exercise, we’re finding that investment managers are slapping labels on funds that are wholly unchanged from where they were before. I applaud the name-and-shame approach that millennials are bringing to the table. I think it’s great because I think there needs to be accountability.

Greenwashing

Honor: It is argued not enough companies are getting to the heart of the issue – not making specific long-term targets by which investors can measure how a corporation is fairing on ESG. But while there is an increasing appetite for ensuring that you and your companies are making a positive impact, there is also a risk that this encourages clients and companies to engage in so-called greenwashing. 

Greenwashing is a marketing spin used to persuade the public a business is environmentally friendly. The term has unfortunately gained increased traction in the corporate world, so, will we see more legal action against greenwashing in the coming years?

Isobel: Greenwashing is when you pretend to be doing something that is good for the environment, or that is a contributor to the net-zero journey, but which either has the opposite effect, or does not have a particular effect at all. 

And this is becoming a really acute issue because ESG investing is becoming such a hot topic from a marketing perspective. And so there’s a lot of products being sold out there saying ‘you can do well and do good’, and it’s a perfect story for an investor, especially a retail investor. 

And there’s a real danger that these products are being labelled without considerable thought to what the actual impact of that investment can be and whether the claims stack up to the reality.

Honor: That was Isobel Morton speaking. McDonald’s was caught greenwashing in 2018 after they announced they would get rid of single-use plastic straws, despite it later being found the straws they replaced them with weren’t actually recyclable. 

A less public case can be seen when the asset management arm of a major European bank launched an investigation into allegations of greenwashing in its ESG investment funds. In reports from the firm’s global head of sustainability, it found misleading statements in the bank’s 2020 annual report claiming that over 50% of their assets were invested using ESG criteria. 

As Isobel goes on to say, businesses need to be confident they are reporting their sustainability endeavours correctly.

Isobel: If they are making a net-zero commitment – is it a science based commitment? Is it marking its own homework? Businesses are rushing to catch up and look like they are ahead of the curb. And it’s a really complicated area – it is not a straightforward thing to be able to predict. 

I think we will see a lot of action in the next few years as these claims start processing through the system and those businesses making those claims start to be held accountable.

Honor: So, how can businesses, who are correctly reporting their sustainability agenda, avoid being perceived to be greenwashing?

Kelly: I think you need to make sure you measure systemically what you are doing, and you’re in a position if challenged to produce the data to show for example your emissions reduced from X to Y over a year. So, it comes back to being transparent and measuring and analysing and reporting your data properly.

Still some reluctance?

Honor: So, if most companies and individuals are in agreement that sustainable investment and a strong ESG-agenda is only beneficial to an organisation, why are others still reluctant? Matthew puts this down to a lack of education.

Matthew: They need to be working with investment managers that understand what the clients are seeking to achieve and fulfilling those aims … identifying the basics and creating a framework around that, means the clients have got greater buy into the concept, rather than just ‘we have this ESG portfolio, let’s invest’. I think clients need to have a deeper understanding of what they’re trying to achieve.

Honor: Advisors like our guests can offer support to individuals wishing to invest sustainably. The advice is there, it’s whether people are willing to take them up on it.

Kelly: I think it’s human nature that some people find change easy, some embrace change, some accept the need for change, and some are reluctant. Part of our job as lawyers is you work with your particular client and help them manage change, and if it’s difficult, you work with them to surmount those difficulties.

Honor: That was Kelly Noel-Smith of Forsters. She commends her clients who want to align themselves and their offices with the ESG agenda – they have acknowledged the economic, as well as environmental, benefits it provides. This is a view also reflected by Amy at Acorn Capital Advisors.

Amy: I think there is still a misunderstanding that the more impact you get, the less return you get, because there is a lot of evidence to show that ESG-related companies, and sustainable investments can and often do achieve at or better than market returns. You don’t have to think of it as a sacrifice.

Is ESG here to stay?

Honor: Investments that take environmental, social and corporate governance into consideration are here to stay, and this has only been reinforced by Covid-19. 

It was originally thought interest in ESG would subside after pandemic began to settle, but global research by the Capital Group from this year shows that three quarters of investors expect the agenda to solidly remain. So what do our guests think? Do they agree that ESG is here to stay?

Kelly: It’s a really good question and again, that’s where you have to be positive and hopeful and say that people will continue to be ambitious and take a robust approach to sustainability.

Honor: Kelly Noel-Smith speaking.

Kelly: ...Again, coming back to Forsters, once the boulder starts moving towards being sustainable, I think it’s almost impossible to stop it rolling, that’s my positive take on that question.

Honor: And Matthew Braithwaite at Wedlake Bell?

Matthew: Given the amount of coverage around COP26 and the emotional bind a lot of people have to making the planet greener and less polluted, I can’t see these issues disappearing. We’re talking about raising a generation now who have this part of their DNA, so I'd imagine the conversations are only going to get stronger.

Honor: And Isobel Morton, did she believe ESG is here to stay?

Isobel: I don’t think ESG is here to stay because I think it will become the norm….so I wouldn't be surprised if the term wasn’t in common use in 5 or 10 years time. The sustainability question I do not think is going away.

Honor: ESG is not necessarily a new thing, but the way it is carried out has been reshaped in the past 18 months especially. Businesses are now expected to clearly communicate how they carry ESG out, what weight they place on each aspect of it, and explain why they own companies that are poorly ranked in such terms. 

There isn’t enough research yet to declare ESG a persistent market factor that will generate market-beating returns. For now, it remains a winning strategy for businesses and individuals – allowing opportunity to practice good sustainability and good investment.

Honor: To read the transcript from this podcast or to contact either Amy, Matthew, Isobel or Kelly, please visit our website. We hope you’ve enjoyed listening to our discussion on sustainability - if you would like to participate in our next podcast or make a contribution to our monthly newsletter – The Lede – please reach out to us on our email thelede@transmission-private.com. Thank you very much for listening, good bye.

Matthew Braithwaite

Matthew Braithwaite is a private client Partner at Wedlake Bell, where he advises a wide range of UK and international clients, from individuals, families, trustees, beneficiaries and family offices on a wide range of private client issues, including UK tax, estate and succession planning.

About Amy Blackwell

Amy Blackwell is a Partner at Acorn Capital Advisers, where she works with families to design philanthropic strategies and incorporate impact investing in their portfolios. Amy is also the firm's Philanthropy, Impact Strategy and multi-generational wealth expert.

About Kelly Noel-Smith

Kelly Noel-Smith is the CSR Partner at Forsters, where she specialises in advising individuals and families on tax and succession issues. Kelly advises on the creation and operation of asset-holding structures and family offices to ensure wealth preservation and good family governance.

About Isobel Morton

Isobel Morton is a Partner at Macfarlanes, where she is responsible for the firm’s strategy relating to environmental, social and governance (ESG) issues, with a particular focus on environmental sustainability. Isobel is chair of the ESG steering committee which formulates policies for the firm’s internal operations.