I was intrigued by a recent article on Why Sustainable Investment Means Investing in Advocacy, by Alan Schwartz and Reuben Finighan

The article points out that sustainable investment movements “however promising, assume there’s no need for a trade-off between returns and social and environmental impact. They are grounded in the idea that investors and corporations can achieve commercial returns while fixing our biggest problems—that we can ‘do good while doing well.’” Consequently, “over the past year, once-lonely critiques of sustainable investment movements have joined to form a chorus. They have also become more strident. In March 2021, Tariq Fancy, recruited by the investment firm Blackrock to push sustainable investing into the mainstream, argued instead that ‘sustainable investing and the narratives that surround it’ are ‘a deadly distraction that is actively harming society.’”

It follows that:

• “The only way to turn our titanic global economy around, therefore, is to change the rules so that addressing social and environmental problems is profitable…This is where advocacy comes in. For a start, businesses and investors can use their voices to press for regulatory changes. Recently, 457 investors representing $41 trillion in assets signed a Global Investor Statement calling for faster regulatory change. But while efforts like this are admirable and contribute to gradual cultural change, they don’t do much to incentivize and materially change politicians’ behavior. To do that, businesses and investors need to reach voters. They need to amplify their message, and amplification requires money. 
• …(we therefore suggest) investing in advocacy. Advocacy has enormous leverage. Consider: If we need $10 trillion in philanthropic subsidies for trade-off investing to solve the climate crisis, how much advocacy would we need over 10 years? One thousandth of that figure ($10 billion) would be excess to requirements—the fossil fuel lobby has caused extraordinary damage with much less.

The writers acknowledge that this may seem like a foreign notion: “it’s pure philanthropy, outcomes are impossible to measure, and advocacy is not a core business skill.” But they set out why the opposite may be true. 

• Done carefully, advocacy has commercial benefits. Corporations that demonstrate leadership on social and environmental issues through advocacy are often rewarded with quality staff, more customers, and more investors. And when companies share the cost of advocacy with other, like-minded investors, the individual cost is low.
• While advocacy impacts are difficult to measure, so are the impacts of ordinary expenses like marketing. Importantly, the measurement problems that both advocacy and marketing introduce are isolated; unlike trade-off investing, they do not contaminate investment decisions or evaluations but simply appear in the expense account.
• Business is already highly adept at advocacy, albeit usually on the side opposite to social and environmental good. Lobbying by tobacco, coal, and gambling firms has been lethally effective. The world’s five largest publicly owned oil and gas companies spend about $200 million every year on lobbying, protecting billions in annual profits by delaying and blocking climate action.

The authors argue: “While clients can expect commercial returns, absorbing advocacy costs into management fees will reduce returns for the asset manager. The promise of impact, however, may attract more clients, yield higher capital inflows, and raise net management fees.”

As well as being interesting and quite persuasive in itself, the article chimes with something I’ve occasionally grappled with in this space, that individual virtue (or one’s limited concept of it) just isn’t a sufficient response to the scale of what we’re up against, and mostly just leads one into weightless hypocrisy. For me, financial reporting and standard-setting aren’t beyond the scope of this comment. This is how I expressed it once before:

• the IFRS Foundation can’t afford to take a tone of cultured passivity while tending to its strict mandate, because that’s a road to nowhere. I’m increasingly of the view that the Foundation should aggressively extend its influence not only into management commentary, but also into environmental reporting, and social and governance reporting too, and just about everything that’s on the table, because we can’t afford the fragmentation anymore, and they’re really all part of the same big questions: what investing opportunity does this entity represent?; can I afford to take that opportunity?; does it align with my values? And so on.
• But also, the future of financial reporting depends on encouraging and nurturing those kinds of questions, and the rational engagement that gives rise to them. Since rationality (and science, and knowledge-based policy-making, and so on) are now themselves increasingly and cynically politicized, this leads me to conclude that an organization like the IFRS Foundation can’t, ultimately, remain apolitical – especially in the face of individuals and movements whose poisonous regressiveness can be objectively demonstrated, as much as anything can.

The contribution of financial reporting to society isn’t automatically positive – it provides as much of a basis for investing in and profiting from toxic entities as from virtuous ones. Of course, neutrality is a fundamental qualitative characteristic of financial reporting – such a depiction is “not slanted, weighted, emphasized, deemphasized or otherwise manipulated to increase the probability that financial information will be received favourably or unfavourably by users.” But capitalism is itself an endlessly shifting exercise in emphasizing, deemphasizing and manipulating. There may become a time (if it isn’t here already when diligently generating unslanted depictions of such activity effectively becomes a form of collaboration in the face of cataclysm…

The opinions expressed are solely those of the author