The old magic mantra of ‘doing well by doing good’, allegedly coined by American founding father Benjamin Franklin, is still good as gold among asset managers with sustainability ambitions. For impact investors, especially those with a keen eye on commercial success, the argument rings clear: why shouldn’t financing worthy endeavours such as the green transition or vital social projects yield profits when managed properly? After all, relying solely on philanthropy to save the world feels akin to treading water in a vast ocean. Surely employing the motivational power of good old greed, alongside noble aspirations, should be an acceptable means to scale up and speed up the good work?
Yet, the line between legitimate profit and opportunistic profiteering can be as thin as a razor’s edge, as the diligent investigative journalists at Follow the Money remind us of this week. Taking a closer look at the multi-million pay-outs enjoyed by the four top executives of investment firm Climate Fund Managers (CFM), they find them ‘bizarrely high’.
Pure envy, you might say. The innovative financial wizards of CFM deserve to do well given all the good they are doing. They have amassed almost EUR 3 billion of assets under management in blended financing1, one of the foremost solutions to developing countries’ insatiable funding needs. Thanks to their efforts, there is a steady stream of private and public money flowing towards wind turbines in Tanzania, solar panels in Vietnam, preserving the delicate ecosystem of the Galapagos Islands, and much more.
Sure, there is minuscule risk-taking involved for the good guys at CFM. After all, blended financing’s whole point is to let the governments and public institutions providing the first tranche of funding take any potential hits. But risk-taking is not what they are getting paid for as managers. The executives’ deal-structuring know-how is unique and in high demand. “CFM competes for skills in the fund management, private equity, and [the] banking industry,” as the firm’s CEO, Andrew Johnstone, is eager to remind the critics.
What is a fair compensation for mere financial engineering, though, complex as it might be? Follow the Money estimates that the CFM executives are paid on average 60 per cent more than their peers. Mind you, it is a well-off peer group to start with. More alarmingly, each CFM manager makes, on average, three times more than Dutch Prime Minister Mark Rutte, the guy who has pledged 90 million euros to CFM’s funds on behalf of his fellow countrymen. And there are more bizarre facts to delve into, just Follow the Money.
Oh, well, life is not fair. If we are willing to pay billions, collectively, to be entertained by legends like Taylor Swift or Leo Messi, why not forfeit just a fraction of this sum to incentivise some clever asset managers towards achieving the positive impact expected from their enterprise? As long as we know that we are doing it, that is. I guess transparency is key here. Indeed, most institutional investors interviewed in the article seem fairly comfortable with the CFM’s fees.
“Mixed finance is the next gold mine for the financial sector,” claims Rens van Tilburg, economist and director of the Sustainable Finance Lab. It certainly looks like CFM’s managers are tapping into its potential already. Part of me, possibly influenced by my upbringing behind the Iron Curtain, finds the disproportionate compensation a bit distasteful. Yet, upon further reflection, I might be inclined to withhold moral judgment and instead offer a hearty ‘Well done!’
How about you?
1. For the uninitiated, blended financing is a type of public-private partnership meant to encourage investment in green projects in developing countries that would otherwise struggle to find investors.↩
