• Hannah Duncan

How Sustainable Investing is f***ing with managers’ brains

Updated: Aug 20

From game theories to daddy issues, there's a lot going on for today's wealth managers. And this workplace psychology makes a huge impact on the industry approach to Sustainable Investing. Sometimes to fix what's on the outside, we need to address the inside first.



“We’re not here to save the world,” the boss said. “We exist to make money.” Roose, 2014

Everyone knows that we need to stop investing in fossil fuel companies and planet polluters. That’s old news. So why are wealth managers still relying on them in mainstream portfolios? Why do they keep feeding these crappy companies with more and more money? Here are five psychological reasons why wealth management just can’t seem to let go.


1. A trillion-dollar game of chicken…


Have you ever heard of The Prisoners’ Dilemma? It’s a game theory concept, often used in economics to explain stupid behaviour. Here’s the dilemma, you’re a gangster and you’ve been busted with your partner in crime. You’re handcuffed in a grim prison cell alone and you’ve got to think about what you’re going to say to save yourself. You could throw your accomplice under the bus, blame that baddie for everything and insist on your innocence. Or you could stay completely quiet, be a good friend and hope she does the same. The trick here is that if you both act selfishly, then the cops have evidence against both of you and you’ll go down together. But if you both stay quiet and be selfless, then you’ll get away with it and walk out scot-free.


… But who are we kidding? You’re baddies, you’re here to be bad and of course you behave selfishly. Down you go. That’s what a bunch of researchers think is happening with Sustainable Investing today (Diekert 2012, Heugues 2013, Ostrom 1990 in Mielke and Steudle 2018). Managers don't want to take a leap of faith alone.


They don’t want to be the first to bring up Sustainable Investing to clients, (Oxford Risk, 2019). So, it’s like a game of chicken. Of course, they could make a jump towards real impact investing. But then, what if the other investment managers don’t? What if they’re alone and it goes wrong? How would they explain that one to their boss and clients in the sober light of day?


2. Catching a rabbit and missing a stag

But we’re not done with game theory yet. Buckle in. Similar to The Prisoners’ Dilemma, but with some nuances, this one’s called, The Stag Hunt. It’s an old French economic theory, belonging to Rousseau in 1754. So you’ll need to pretend that you’re an 18th Century Parisienne aristocrat for it to work… (This is not a good one for animal lovers!)

Imagine that you’re tearing through the French forestry on horseback, with the wind blowing through your long, curly wig. You’re here to hunt and … Sacre Bleu! You’ve spotted a massive stag. Magnifique! But wait… there are other hunters too. All of you want the stag. You’ll have to work together to capture it. One little twig snap and it will sprint away forever.

As you glance at each other with your shifting eyes and twiddled moustaches, making a common plan with silent gestures… you notice something else. A petit lapin! A little bunny has bounced over to you and (sorry animal lovers), you’d love to shoot it. It would be easy and instant, but you’d lose any chance of getting the stag. What do you do?

According to Mielke et al (2018), that bunny does not live long.

Mazzucato and Penna, (2015) stress that asset managers need to work together to make a real difference to sustainable investing. But time and time again, easy money and profits sabotage the goal. Short-term gains with global manufacturers, plastic producers and energy companies keep trumping the long-term goal of sustainability. You can’t capture something like climate change, when you keep investing in pollution. Our managers just can’t resist the instant gain of an easy rabbit. But that’s not the only reason that they’re putting short-term gains first. The issue of winning trust and Fiduciary Duty comes into play as well.



3. Building trust in the wrong direction

You know when you’re already in trouble, and so you have to be really extra careful not to make it worse? That’s kind of wealth management. You wouldn’t think it from the way employees dress or go to swanky bars… but they’re under quite a lot of stress (Roose, 2014).

The investment industry has faced more and more public criticism since the 2008 financial crisis (Earle, 2009), when the mask slipped for good and everyone saw the greed underneath.

To mention a few, it’s since been condemned for:

  • Sexism (for example, the 2016 Women in finance charter);

  • Fraud (for example UBS was fined 3.7 billion euros for tax fraud in February 2019);

  • Money laundering (HSBC laundering $881 billion for Mexican drug cartels in 2008);

  • Insider trading (UBS compliance officer leaked confidential information making more than $1.3 million jailed in June 2019)

There are more, but you get the point. And with every fresh scandal, we build more of an image of how bad wealth management can be. With movies like The Wolf of Wall Street, Money Never Sleeps, The Big Short... playing in the background of our minds, who doesn't think the industry is tainted?

What this does in terms of client mistrust and employee confidence is difficult to measure but may be a powerful psychological reason to retreat away from any risk or change, and focus on short-term wins (Mielke et al, 2018).


I’m sure that deep down, many managers do want to make a positive impact on the world. But they may feel they've burned out all their good will. They don’t have the leeway to lose their client’s money and say that it was for the environment. So, it’s better to just invest in blue-chips and oil, to earn back some trust. Right?


4. The bullsh** excuse of Fiduciary Duty


Wealth managers have a Fiduciary Duty to clients. It means that they need to act in the client’s best financial interests. And so, for many this has become a bit of a fail-safe. “I’d like to save the world, but I need to make money for my client”, that kind of thinking.


Recently the U.S. Department of Labor proposed a law to ban Environmental, Social and Governance (ESG) Investments in pension schemes. They cited exactly this reason, "Fiduciary Duty". It's ironic, because it's using responsibility as an excuse not to be responsible. Brilliant.


Sadly, Fiduciary Duty has become a blanket for managers to hide under, like a baby. A bullsh** excuse to keep lining the wallets of oil tycoons and planet polluters, to the detriment of everyone else.


Over the past years, studies have shown that managers are feeling ‘trapped’ (Mielke and Steudle 2018) by their fiduciary duty (Goldman Sachs 2015) and maintaining the status quo. They feel like their hands are tied when it comes to sustainability.

What’s needed is some clarity and leadership, which brings us to the next barrier…


5. We’re all waiting for a leader

Daddy issues. If you’ve ever worked for a wealth manager, you’ll know what I’m talking about. Heads are constantly turned upwards looking for approval. And I’m not blaming anyone, we’re talking about millions or billions of pounds at stake. I’d double check with my boss too.

When I worked in wealth, I thought the head-craning eventually stopped with the CEO. And we were all like little ducklings, who followed him* and his mighty duck tail comb-over.


I thought the CEO looked down at all the people swooning beneath him and directed everything, like a puppeteer. However, after studying it, I realised that he’s looking up too. It’s human nature. These great wealth management C-Suites are looking for sustainable leadership, just as much as everyone else.


Rather than pioneering solutions, the vast majority of us are ‘looking to the system’ (Banbury et al 2012) to solve sustainability issues. And that's partly why everyone's standing still.


The irony is that companies often follow money and are looking to investors for guidance (Oh et al, 2013). D’oh!


But investors are waiting for a leader to tell them to be more sustainable. And governments generally want to win the favour of investors and companies, so they’re not going to rock the boat too much.


We’re all glancing at each other, like nervous first dates, but nobody is taking the lead. The only people crying out for sustainability, are Gen Zs like Greta Thunburg. But who listens to them? They don’t have any money.


That’s why when people like Larry Fink speak out, everyone jumps to attention. Daddy’s home. But where are the consistent leaders? Where’s the FCA of Sustainability? We need them. It’s too deeply ingrained in our psyche.


The planet is screaming for ESG leaders in Wealth

We need leaders. And while the role is open, I’d like to suggest that we fill it with people who are not white, middle-class and middle-aged men for a change.


Read more about how less than 1% of investment managers are black, and how can we improve.

We need more women, more ethnicity, and more mind-sets to make this work. People who won’t accept green washing, and who are brave enough to turn down money if it means harming the planet. People who are not afraid to play chicken, resist short-term gains, re-define trust and re-direct the market.

Sustainable leaders in wealth and asset management must have real power, real teams and real resources. It’s not fluffy, it’s not “nice-to-have”, it’s how we prevent the world ending. What could be more important than that?

How are you going to trade derivatives when you can’t breathe?

We need the A-Team. And we needed them yesterday.


*It’s nearly always a man. One time, when I’m really fired up, I’ll write about how women have to work twice as hard to get leadership roles in finance.

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© 2020 by Hannah Duncan