What is it that separates Castlefield’s approach to ESG versus the mainstream bustle where the capital market’s obsession with turning an extra buck has seen an ESG industry mushroom in growth over the past three years.
I remember going to the CFA conference in Frankfurt in 2015, where ESG was first paneled as one of the bills of the show. There was curiosity and quite a lot of interest. But there was no authentic Eureka moment when a collective industry suddenly gets it. Since then however, huge amounts of resource have been allocated to building up teams, providing third party off the shelf services, promising high coverage of index constituents, awarding rankings with anything from gold stars to green foliage as a mark of endorsement. Thousands of young analysts flock to provide research to the big players such as index providers MSCI, giants such as Bloomberg and even fund researchers Morningstar. These big organisations have followed the specialists such as Eiris and Vigeo, whose pockets run less deep than their larger peers, who swoop down to pay top dollar for anything with the word ESG attached. Enter the next phase of the cycle – consolidation and control. In short, this is all about money – how to make the next theme pay big. Take money, throw it at a concept and see what falls out the bottom…. Investment managers have done the same, building ESG teams alongside their investment teams, producing slick and shiny brochures.
We think this is understandable. Castlefield watches the speedy evolution with interest and a little trepidation and we wonder whether the most recent ESG industry fandango risks verging into miss-selling territory.
Castlefield doesn’t think it’s right to outsource an integral part of the investment process and pay money to be able to use someone else’s mark of endorsement for our clients. Castlefield does not believe that it’s right to pay someone else to provide the knowledge we need to make thoughtful investment decisions. Castlefield will not abrogate its own responsibility to do work on behalf of our clients. That’s not the best outcome for the client, though monetarily advantageous to the investment industry.
We do the work ourselves. From start to finish. All our investment team are involved in the process. There is no separation between investment managers and ESG specialists. We have never believed that it is sensible to separate a single role, creating silos, politics and conflict. Applying these non-financial factors within the analysis process allows the team to identify material risks and growth opportunities. We are sad to hear from our investee companies how often an investment team carry out a meeting, separate to the ESG team meeting with the investor’s ESG task. This we feel is an imposition of potential conflict, and we wonder if this is in the client’s best interest.
The end result is a Tower of Babel. MSCI talk about x calling it y and Bloomberg talk about x calling it z. What my granny would call a beggar’s muddle. At Castlefield we have no need of a babel fish to peer through the murk of taxonomy, which always puts me in mind of Henry Reed’s wonderful Naming of Parts from 1942. Here at Castlefield, we know our parts. We have enjoyed and evolved and adhered to our own very clear policies since the firm was started. From exclusion at the source of the process to the minutiae of detail we demand at the process delta. Our team does everything, inhouse, together - there is no investment team and ESG team. We are one. This is not to say that we don’t contribute to and collaborate with NGOs on various themes and topics. We are small and we understand the power of collaboration. But we are a unified team. Our work is done in a way that everyone can contribute to the process of a piece of research. Everyone from the new graduate recruit to the seasoned veteran has a voice on the team. Everyone earns their berth. As co-owners, Employee Ownership teaches us that the more we contribute the more we achieve and the more fulfillment we derive from the job. There is no pay for performance culture at Castlefield, and this does not impact on our performance track record, meaning that our client outcomes are more important than our own bank balances. Possibly we spend less time in territorial battles of whose decision rights lie where with an investment proposition, or that we just don’t pay others to do what is after all our work. If we look at our ability to engage with our investee companies, big multinationals typically gauge feedback on issues such as board remuneration with their fifty biggest shareholders. We are always amazed and feel honoured that that list includes us, possibly one of the smallest shareholders on the register. We often ask why we are being canvassed for our view. ‘Because you guys ask interesting questions and point us in the direction of where we need to be thinking next’. I’d settle for that over golden acorns or green shield stamps any day. We do things together at Castlefield. We are one team and our ardor for what we do defines us.
Written by Rory Hammerson
 The Institute of Chartered Financial Analysts, the industry benchmark designation, which takes 3 years or longer to achieve. The Institute holds an annual conference where the topics and themes of now and the future are discussed in panels and other forums, led by highly renowned industry practitioners.
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