Doctor prescribes profitable dose of ESG

Dr Raj Thamotheram, one of the brains behind the UN Principles for Responsible Investment, is critical of the slow integration of ESG (environment, social and governance) issues into many fund managers’ processes.

Thamotheram, who divides his time between AXA IM and ESG volunteer activism, says “the signals are still weak, but getting stronger”.

Only about 11 per cent of Requests for Proposals stipulated adherence to ESG and/or responsible investment ratings, he says.

This is up from 9 per cent in 2007, he says, but it still shows that funds have a “very, very long way to go”.

The ESG element is analogous to supply-chain dynamics in the commercial world, Thamotheran asserts.

“It’s well understood in corporate sectors that asset owners have to drive the supply-chain and mandate the criteria,” he says. “In the investment world, the trustees have to begin to insist on ESG being included in the process.”

He points to what he calls meta-research which shows that use of ESG ratings and principles “does not decrease performance”.

“On average, it increases performance,” Thamotheran says. “Not only does ESG inclusion do no harm, but – on balance – returns are better.”

Formerly a medical doctor, Thamotheran has forged a fascinating path to now working as AXA’s in-house ESG guru, and most recently as co-founder of the Network for Sustainable Financial Markets which he describes as “a network of well-regarded ‘positive deviants’ within the financial system”.

In describing the apparently random path from the University of Bristol’s medical school in the early 1980s, he explains: “My basic rationale for this eclectic path is moving closer to the source of most power and learning how to better influence it from inside but working with creative outsiders.”

Since joining AXA IM in June 2006, he’s been responsible for securing top-level support for a “serious mainstreaming strategy – RI Inside – with a significant expansion of resources and activities”.

He handed over the team leadership role in June last year to work part-time at AXA IM as senior adviser on thought-leadership and other projects.

The strategy, ‘RI Inside’, is similar to Intel’s ‘Intel Inside’ branding, Thamotheran explains. Just as the Intel Inside sticker assures the consumer of rigorous testing and high quality, so too does the RI Inside endorsement at AXA IM assure customers that analysts and managers have applied exhaustive ESG standards to investment choices.

Thamotheran is concerned that investment individuals are “trapped into peer group accountability and benchmarks”.

This leads to me-too investment choices, he warns. “How do you get the whole to move.” Do you launch a new fund?”

Putting his money where his mouth is, Thamotheran was an early supporter of the Finance Lab in September last year. This ambitious large-system change project is sponsored by the Institute of Chartered Accountants in England and Wales, with stewardship responsibility for the From Risk to Resilience working group.

Thamotheran has always had skin in the game, putting into practice what he preaches about responsible investment.

From 2000 to 2006, he was the inaugural senior adviser for socially responsible investment at the UK Universities Superannuation Scheme, with £22 billion in assets and more than 162,000 members.

During this time, he was responsible for establishing USS’s position as one of the global leaders in RI, with a particular reputation for collaborative, systemic engagement projects.

Before this, in the late 1990s, he consulted on corporate social responsibility with clients ranging from BT to Caricom.

As first manager of the Ethical Trading Initiative, he set up the strategy and helped the new group separate from its founding NGOs.

It was his work in the late 1980s and ’90s that propelled him to want to work “closer to the source of most power” and influence it internally.

To these ends, he found Nuclear Freeze and SaferWorld in the late 1980s, and thus learned, at first hand, the intricacies of fundraising from major donors including Ford Foundation, Rowntree Charitable Trust and Network for Social Change.