One of the more enlightening findings from the focus groups which Edelman ran alongside the Huffington Post ahead of the December 2019 UK General Election was voters’ widespread skepticism about grand manifesto promises. Rather than a warm welcome for policies such as reducing carbon emissions effectively to zero by 2030 and free broadband for all, the responses were caustic: “Manifestos are wish lists, aren’t they…? Why, and how is it going to be paid for?” The collapse of the Labour party in the election strongly suggests this scepticism was shared on a national scale.

In both politics and business, we are shifting from a promise-based to a proof-based system. In a promise-based system, addressing “what?” and “when?” are paramount – the commitment to do something within a certain time frame. In a proof-based system, the emphasis moves to the questions of “why?” and “how?”. We now need to understand both the rationale for a politician or business’s actions and the way they work.

Blind faith in politicians and businesses to deliver on their pledges has given way to suspicion. The more ambitious the promise (“free broadband for all”), the more incredulous the reaction is likely to be and the greater scrutiny of the “why” and “how”. This is the logical outcome in a country where trust in its institutions is at rock bottom. According to the Edelman Trust Barometer 2020, the UK ranks second bottom out of 28 countries for trust in Government, the media, NGOs and business. Only Russia is lower. More than half (52%) of people in the UK believe that news is contaminated with untrustworthy information and almost three quarters (72%) think that false information is routinely used as a weapon.

The idea of a national broadcaster deciding it needs a dedicated service to stress-test the veracity of claims made to the public sounds Orwellian. The BBC has run its “reality check” for the last four years.

The migration towards a proof-based relationship between businesses and their customers will have a particularly significant impact for ESG investors. As consumer behaviour continues to evolve to become more environmentally and socially conscious, having the best ESG credentials has become the key to gaining competitive advantage. Morningstar data at the end of 2019 showed flows into ESG products increased by nearly 2500% over the previous five years.

The central promise on which many ESG funds’ marketing campaigns are founded is that making socially responsible investments does not mean sacrificing returns – in fact, ESG funds offer superior returns. In other words, these funds offer the best of all possible worlds.

However, as growing numbers of ESG funds come to the market and the investment discipline becomes mainstream, more questions will be asked about “why” and “how” they work. Just as audacious “cake-and-eat-it” political promises are now being met with high levels of scepticism, investments which claim to address climate change and social inequality in more effective ways to those offered by the ESG fund next door are likely to be increasingly viewed with suspicion.

The burden of proof will inevitably fall on fund groups to explain their purpose (why they are a social good) and their process (how they identify and analyse investments).

In terms of purpose, the oft-repeated refrain that making socially good investments will lead to stronger returns - meaning investors win on both counts - will cease to be enough. “Doing good” implies a moral choice. Presumably most, if not all, fund managers want to achieve the best possible returns which, according to prevailing wisdom, is correlated with making sustainable, ethical investments anyway - so to claim doing so represents some kind of moral high ground will ring more and more hollow. It is simply pursuing the most logical path to the strongest returns which, rather than being a moral choice, is actually just the self-interest of an investor doing his or her job.

The new frontier will be to explain – convincingly whilst maintaining a duty of care for their clients - why an investor’s efforts to affect social good may result in less than perfect outcomes. Perhaps doing so will involve more risk. Perhaps the time horizon to making an attractive return may be longer. Perhaps the investments will be less liquid. Perhaps the rate of return might actually be lower for the foreseeable future than if you invested in a portfolio containing tobacco, non-renewable energy and munitions stocks. Articulating the inconvenient truths of ESG, especially when global markets experience a prolonged downturn, will be the true test of its longevity. This requires boldness and empirical rigour, but those companies which are able to do so are likely to be supported rather than spurned by a society weary of being sold undeliverable pipe-dreams.

In relation to process, our Asset Management Brand Research tells us that fund management firms have historically not been effective in communicating the differentiators of how they operate. Scores for “investment process” - how they go about their decision-making, risk management, research and technology and tools they use to do so - were consistently lower than scores for “investment talent”. This indicates that firms are focused far more on marketing the skills of individuals than what goes on under the bonnet.

In a promise-based system, the approach of “trust me, I know what I’m doing” might fly. In a proof-based system, it sinks like a lead balloon. Investors will need to show their working out. This is particularly true for ESG. Whilst a “star” fund manager’s subjective view on which stocks will achieve the best returns has been highly marketable, an individual’s subjective view on what is “socially good” seems significantly less so – to the point of being perverse and dangerous. “Good”, in the ESG investment sense of the word, will need to be objective and underpinned by a clear and transparent methodology.

We live in a data-driven world. According to the World Economic Forum, the size of the digital universe is expected to reach 44 zettabytes in 2020 – meaning there are 40 times as many bytes than there are stars in the observable universe. Unconsciously, therefore, we are all processors and analysers of vast amounts of information. We are becoming accustomed to having evidence for everything and skilled at filtering out bogus material. Businesses, politicians or investors basing their appeal on aspiration rather than credibility will face an increasingly tough crowd.