High-profile personalities can face various risks to their careers, from injuries or bad performance to reputational risk or an unwelcome appearance in the press.
While many sports, media and entertainment personalities are conscious of their brand and reputation in relation to business and sponsorship deals, few are likely to consider the reputational issues associated with their investments – an area that can provide opportunities to both protect and enhance their brand.
Protecting a brand in a 24-hour world
The idea of incorporating environmental, social and governance (ESG) factors into an investment portfolio is not a new one. So-called ethical, or socially-responsible investment (SRI) strategies have been around in the United Kingdom since the launch of the Stewardship Fund in 1984 by Friends Provident, while the Vietnam War inspired the launch of the first socially-responsible mutual fund in the United States, the Pax World fund, in 1971.
ESG investing has frequently been associated with doing good at the expense of lower returns. But this is a thing of the past as more sophisticated investment strategies and improved governance reporting means it's possible to have both. In a world of social media and 24-hour news, the image, brand and values of a high-profile star's life are under increasing scrutiny, including where they invest their money.
Jonathan Gold, director, relationship management at RBC Wealth Management in London, says an athlete or entertainment personality might have a short-term career, but their portfolio needs to have a long-term horizon and be transparent in terms of their understanding of what is in it and why.
“There are plenty of examples of high-profile people who haven't paid attention to what their money is doing or have let someone else look after it and have been left with unexpected consequences," Gold says.
“That isn't really a good excuse when it's your money. There needs to be education around the importance of a long-term portfolio, and the idea if you own shares in a business you are a part owner of that company. If you're a high-profile sportsperson, why wouldn't you want your investments to have an association with what you feel are significant brand values?"
Ethical investing 2.0
Jeremy Richardson, senior portfolio manager at RBC Global Asset Management, says ESG investing has grown and developed over the past decade. “Back then, the idea behind SRI was to avoid investing in what was perceived as bad stuff so it was an exclusion based approach.
"That was SRI 1.0 and it was better than nothing but not great. One of the criticisms of this approach is that it was very blunt. You might want to make the world a better place, but if you have sold out of a company then you lose your voice," he says.
Richardson says the industry has now migrated towards ESG, which tries to cover a broader horizon. “It is trying to understand that these ESG issues relate to all companies. That there is an opportunity to engage and try and influence or direct the capital of companies away from some of those pitfalls, and towards thinking about these non-traditional risks," he says.
In addition, integrating ESG factors into a portfolio can help you to identify investment opportunities, as well as improve risk management. Richardson says by investing in companies with positive ESG qualities, investors are better able to capture opportunities other companies or investors are not. He says this is a source of market inefficiency and is one way to potentially achieve better investment returns.
“Technology means that information has become commoditised," Richardson says. “Company information is available very quickly and to everybody, but ESG factors won't always be in the reports and accounts. If you're sensitive to these types of issues, they can give you insights not recognised by other investors, allowing you to capture it and turn it into returns."
A tool to develop informed insights
Using an ESG investment approach is not necessarily about making a judgment on whether a company is the most environmentally friendly business, Gold says. “If you're comparing two oil businesses, for example, and one has a better environmental footprint than the other, why would you choose the one with the worst record?" he adds.
“People mostly focus on their investment requirement, so they'll say 'I want an investment portfolio that provides this sort of return with this sort of risk level,' and that's all they concentrate on," he says.
“But alongside it there is the opportunity to incorporate the personal values a high-profile personality might have – family, brand and philanthropic principles – in a simple and transparent way without taking away from the investment returns."
Richardson agrees. “Thinking about non-traditional sources of risk and opportunity can be very helpful in avoiding headline risk, and maybe even aligning with your sense of mission or purpose. Whether this might be social, environmental, or about doing no harm, this is a very useful first step."
But he warns, while ESG factors are a good investment approach, it needs to be used as a tool that helps to develop more informed insights.
“Like any tool, it needs to be applied and interpreted using judgement, expertise and qualifications. Many of these ESG issues are long-term in nature, so while they can help a proficient investor, in the hands of someone without the right mindset, it won't be as helpful," Richardson says.
Investments aligned with an image
For Gold, where a person invests is just as important as the brands they endorse.
“A high-profile personality takes time to partner and align with brands that fit with their persona, and they should understand that their investment portfolio can help them do that too," he says.
“This may be money they never need, so it's important it's doing something in the right way rather than just being put away. ESG considerations offer investors a portfolio that can align with the image they want to present in a way that meets their investment criteria and their personal requirements, so they can get on with their job and win the next Grand Slam, the next Oscar or sell out the next stadium tour."