Sustainable Investing: From ESG Integration to Impact Investing

Where are we?

As advisers and lawyers to businesses and entrepreneurs, as well as investors managing their own portfolios and business families with a long history of activity in social projects, we have a wide perspective on the range of issues that fall within the spectrum from ESG to impact investing. This perspective, and our own commitment as a firm to be sustainable in what we do, and to use our capabilities and connections to work with our clients to achieve their sustainable aims is fundamental to our own purpose as responsible advisers.

Whilst the whole ESG and social impact area has seen growing activity for many years,  the global challenges of the pandemic have clearly driven more individual, family and business sentiment towards responsible strategies, and responsible investing, with more investing for purpose to address inequality and environmental challenges. As we see the visible impacts of climate change, and hear success stories of businesses driven by sustainable values, sustainable products, and use solutions which solve sustainable problems, interest and activity grows. There is no doubt that this landscape has encouraged businesses to do more than merely comply with regulatory ESG demands, and for investors to seek investments which reflect their own values and desire to use their capital and connections for good purpose and impact.

At Charles Russell Speechlys we have the deepest conviction that as advisers to businesses and investors we have a responsibility to be advisers for change within businesses, and to harness private capital to address world challenges in a way which makes sense for each client and suits their motivation and overall ambition.  In this role we try to have as many conversations as we can and provide our clients with the means to integrate sustainable frameworks into their strategies with specialist legal services and relevant connections, whether our clients want to address the challenges within their own businesses, or make direct or indirect investments in sustainable businesses and philanthropy projects.

During the past year, we have seen transformational change in what people have wanted to do and the speed to which they have wanted to get it done to secure the outcome that motivated them. The trend we see is for more businesses to recognise their responsibilities and to go beyond ESG compliance to achieve more and at speed, in line with their own sentiment and expectations of stakeholders. And, for families to know exactly what they want to do on their own journey towards sustainable investing – whether through family philanthropy in sustainable projects, or through investment partnerships where they can provide operational knowledge and connections, and perhaps due diligence on the people and projects envisaged.

For some the answer lies in transforming a family business, where our experience of advising families with conflicting expectations is drawn upon for harmonious and sustainable solutions. Some recognise the challenges that their operations bring in terms of their own ethics and wish to do better for their employees, customers, and suppliers as well as the community that serves them. This may require a change of roles, new capitalisation, and the separation of the business of the enterprise from the business of the family which is not always acceptable or doable.  It may well be the time to sell.

Here we manage the business sale to a worthy buyer with the capacity and capability to fund the transformation and behave in a responsible way, leaving the family to diversify into a range of new opportunities which may resonate more with the thinking of younger family members.

We have seen families investing in new businesses based on sustainable production or sustainable solutions.  Investing directly in these businesses with a purpose which matters to the family, and which has a good prospect of a fair return, is a more attractive journey than transforming the family business.  These deals are hard to find and difficult to access and where we can we will make relevant connections and source specialist analysis and industry experts enabling our clients to build over time a portfolio of sustainable investments. We also use our legal capabilities to set up new sustainable businesses for ambitious entrepreneurs who want to take advantage of the surplus private capital and new green funding, designing arrangements which include investing alongside charities, community groups and local bodies.

Where a family business is sold, or a client receives capital from an asset sale, inheritance, or maturing investment, and the proceeds are destined for investment managers, are they likely to be shown sustainable strategies, including specific funds designed for measureable impact?  And what is the position of the adviser?  For me, as a lawyer rather than an investment manager, its crucial to understand who does what and to look closely at the credentials of both, but the question to the client is always, “what are you aiming for?”,  mindful that the client wants choice, but not confusion. Clients are concerned with “greenwashing” and comparative measurements of return, both of which need to be better addressed to promote the integrity of sustainable investments and potential social impact.

We know that as activist and wider sentiment grows for companies to comply with good business practices, businesses invariably want to pre-empt conflicts and do more but this may not be easy. Boards have to balance shareholders interests  and not all shareholders take the longer term view necessary to adapt business practices and change behaviours. At the same time individual Board members are aware of their own accountability and the impact of fallen share values on their own remuneration – and perhaps future employability. CEO’s are increasingly working to address conflicts and balance interests with better investor communication with time lines for change aligned to financial projections. Its harder when Boards do not know who their shareholders are.

But institutional shareholders are known and increasingly want to see ESG  and sustainable strategies adhered to,  and if not to see a clear plan to achieve it.  They will publically announce their withdrawal when a company continues to exhibit bad practices, or refuse to invest in new offerings for ESG reasons – as we saw with the recent IPO of Deliveroo.  But there are different examples like Danone and AstraZeneca when sustainability and social purpose did not meet the investors criteria,  and we saw Danone’s CEO exit, and increasing pressure put on AstraZeneca’s CEO who was driven by saving lives rather than short term high returns.  The message is always the same: You have to balance interests in achieving worthy outcomes.

At Charles Russell Speechlys we are on our own sustainability journey grounded in our determination to do the right thing and to generate long term value for our clients, our people, our communities and our natural environment. Like many of our clients we are challenging ourselves and striving to do more, recognising that reaching our own responsible business goals will take time and investment.

As I look across the firm I see colleagues advising companies and institutions on ESG and sustainability, advising entrepreneurs and investors on new sustainable projects, and advising rural estates on new environmental enterprises. We are also advising the professionals and executives whose own wealth and reputation will suffer if they run bad businesses, the international family offices who want to invest safely and in a sustainable way, and the trustees whose authorities to invest and investment mandates need changing to accommodate new practices.  There can be no doubt that our work with all our wide ranging clients to achieve their sustainability objectives, is fundamental to our purpose as a well rounded and commercially successful law firm.

Sustainable investing means different things to different people but as we see new wealth created from businesses  in new green energy or eco-products, or new health care delivery systems which administer medicines to more people more quickly, we share client success stories. We share our experience and connections wherever we can to build further client understanding and engagement, working with the investment community and the philanthropy community and all responsible client advisers to bring people and opportunities together for a shared sustainable future.