Picture two houses, braced for a coming storm. The first, a dizzyingly complex construction, sprawls across many fragile points of distribution. Its slender beams are exposed, swaying dangerously in the currents. Look closer: some are rotting; rain is trickling through the ceiling, corroding the infrastructure. Its residents, with growing unease, rush to construct a reinforcing layer to hold the storm at bay; it gleams, reassuringly new, even as the foundations start to crumble.
The second house, in contrast, is shockingly plain and slender. But it extends into the sky, giving shelter to families and communities across generations. While its neighbour sways and shudders, it stands fast: foundations solid, each beam selected to weather this storm; stress tested, again and again, the grain inspected for integrity, flex and durability; the house built gradually; each decade refining its construction and reinforcing its foundations.
The first house represents the vast majority of Environmental, Social and Governance (ESG) strategies at play in today’s financial markets. The second house represents the practice that we at Arisaig call Purposeful Growth.
Today, we are all in the storm, building our houses for the coming years. As global citizens, we can be under no illusion about the volatile, uncertain, complex and ambiguous nature of the world we now inhabit. In the experience of Covid-19, and the shrinking of our collective sightlines, we have all been forced to confront the fear, bias and irrationalism that governs zero-sum decision making in a short-term world. The financial markets, trained on blinkered Western realities, short-term horizons and zero-sum gains, have long behaved like a person fallen prey to the pressures of early pandemic. Today, as the world’s intersecting crises spill into even the most buoyant economies, they are in turmoil. But they have yet to lift their sightlines. Instead, they reach for ESG fixes – now the answer to every conscientious employee, alarmed shareholder, and unhappy government. ESG funds and indexes, strapped defensively onto old structures, flourish as their own bootleg economy. BlackRock CEO Larry Fink, overseeing the largest pool of investor assets in the global economy, preaches purposeful business and ‘environmental capitalism’.
By any estimation, this shift is positive; a step in the right direction of a long, long path. It promises, and may deliver, many things, not least a change the outlook of the next generation of investors. But what it will never do is challenge the logic on which these markets have been built. For those within the system, this logic exerts a powerful grip. See Blackrock whistleblower Tariq Fancy, formerly Chief Investment Officer of Sustainable Investing, who last year in The Economist dismissed the ‘ESG story’ as just another ‘opiate sold to the masses’; an act of ‘financial virtue signalling’ with ‘limited use in most investment processes… due to a combination of ambiguous data and inconsistent standards, short time-horizons for most investment strategies and the uncomfortable reality that being responsible usually isn’t profitable.’ The only solution, he concluded, is sweeping government intervention.
Fancy is right to call out the inherent weakness of the current ESG narrative. But he misses the real fallacy. In the hard lines drawn between (futile) engagement or (effective) regulation, between ethics or profit, Fancy typifies the boom and bust cycle of blind hope and easy despair which defines the problem at the heart of the ESG conversation. The lie is not the centrality of environmental, social and governance considerations to effective investment and market reform. It is that sustainable value creation can ever rest on short time horizons. Until we move past this fundamental error, true ESG practises will remain a paradox; tactical shorthand; a sapling planted to offset the rainforest we continue to burn, wondering all the while why the air is becoming thin.
But for those with access to a different perspective, there has always been another way. This way is Purposeful Growth.
Arisaig has always aimed to emulate our namesake settlement in Scotland by providing shelter from global storms. For over 25 years, we have captured the phenomenal opportunity of rising emerging market demand which forms 80% of the global population and drives the engine of global growth. We have done so with a 20-year, buy-and-hold view which seeks, through forensic analysis, thoughtful judgement and continuous calibration, to identify Purposeful Growth businesses: exceptional companies who dedicate themselves to inclusive, multi-stakeholder value, sustained over generations; who earn the right to grow year after year by making the enrichment of environment and society their core purpose. The cultures they nurture and the systems of governance they embed exemplify a growth mindset, which constantly seeks to learn, adapt and improve.
These companies tend to deliver long-term, compounding returns for a simple reason: their products and services benefit society; thus ensuring strong returns; thus shoring up cashflow for long-term reinvestment and competitive innovation over time. In contexts where exponential potential is matched only by volatility, our holding businesses change lives for hundreds of millions of customers: delivering ultra low cost malaria protection to hundreds of millions of families; creating fair digital marketplaces for Chinese entrepreneurs; delivering essential products to locked-down Latin American consumers; providing girls all over India with affordable sanitary products they need to stay in school. By doing so, they create superior returns for investors, as well as lasting value for their societies and their world.
In a post-pandemic world, Purposeful Growth is simply a name for enlightened self interest. It remains the exception, not because it is radical, but because it is hard to execute. This is for several reasons. Firstly, its value is only recognised by the minority, like Arisaig, who are themselves products of Purposeful Growth cultures: aligned in their commitment to multi-stakeholder, multi-generational value, achieved through constant self-reflection, challenge and learning. This culture is key to the Research Excellence which identifies these exceptional businesses, stringently seeking to combat individual bias and patchy data through rigorous analysis, deep local expertise, unapologetic deliberation and continuous collective reflection. It is central to Endurance Investing, which resolutely pursues a concentrated, high conviction portfolio regardless of market noise. It unlocks the Constructive Ownership with which we steward our businesses toward enlightenment: an approach rooted in the belief that perfection is a myth, partnership is patient and improvement is incremental – especially in emerging market contexts. Above all else, it affords us the luxury of time in which to seek bigger, more hopeful horizons. To ESG’s fragile sapling, Purposeful Growth is a mighty forest, providing resilience, resource and renewal across generations; giving us the space and time for new types of conversation and new ways of thinking about the world. Join us on the journey.
