Lynn Forester de Rothschild, or Lady de Rothschild, as she’s referred to in the UK, has had an incredible career, perhaps best known as the former chief executive of the EL Rothschild family office, which includes The Economist as one of its holdings.
In recent years, she has been a leading voice for the ESG movement. Putting her money where her beliefs are, she founded Inclusive Capital Partners, an investment firm focused on generating long-term returns while making a positive impact on the environment and society.
She also founded the Council for Inclusive Capitalism, which comprises CEOs who want to do business in ways that lead to a more inclusive and sustainable economy. The list of members includes the CEOs of CalPERS, Merck, Visa, EY and Salesforce.
In addition, she started the Coalition for Inclusive Capital, which partners with various leaders across private, public and civic sectors. One of the Coalition’s initiatives is the Pension Fund Coalition for Inclusive Capitalism, which empowers pension system managers to invest in sustainable businesses. It has developed a framework and language for the managers to use in side-letter agreements and other arrangements that outline ESG and similar objectives. We chatted with Forester de Rothschild about her work and ESG in general.
Many people ask why ESG issues are important for pension systems. How do you answer this?
The pension system globally is worth $23 trillion. And the goal of pension systems is to provide returns for their beneficiaries.
Thinking of pension systems only in terms of the stock price return may have worked in 1945. But in 2025, it might not be that simple. Our climate has become more fragile and endangered. Our societies have become more divided.
A pension system CIO must ask themselves, “What is my duty to my beneficiaries? Do I have a duty to make sure they have the kind of world they want to live in when they retire? Do I have a duty to ensure that beneficiaries’ money is more inclusive and sustainable? Can I use the investments in the pension system to achieve those goals?”
That, to me, is the most important role for pension systems to figure out. Do we only care about returns in a dollar sense or do we care about how returns can affect a system’s beneficiaries and their communities over the long term? This is not an either/or. It is both/and.
ESG appears to be at an inflection point. There are still many questions about how to actually implement change.
ESG is under siege. Some of the criticism is very well deserved. Attacks on ESG are justified, like the extreme case we recently saw at a financial institution in Germany where there was an actual misrepresentation of ESG.
But even beyond flagrant misrepresentation, there is way too much ESG product being shopped. There are a lot of ESG products presented by managers to make pension systems feel good by putting on an ESG label and there is nothing in the investment process that actually advances those goals. Shame on the asset management industry for not taking the legitimate desires of pension systems to invest in ESG seriously.
Because of those mistakes and the instances of malfeasance, we have given an opening for people to say that ESG goals don’t matter. All that matters, to people who hold these views, is that we need to only make our widgets and our guns and a profit for shareholders. To me, that criticism is not legitimate.
I think the solution starts where pension systems ask themselves if they are in the “check-the-box business” or if they actually believe in the investment theses that greater shareholder value will be created by companies that profitably solve the problems of the planet. I say this from real experience. Some of the most bloviating proponents of ESG in the pension system business are the ones that invest with the check-the-box people who are not serious. And if pension systems are serious about ESG goals, they need to have metrics in place they impose on their managers that require reporting.
How does the framework of your Pension Fund Coalition for Inclusive Capitalism benefit pension systems and other LPs?
I think it’s a very valuable framework. It gives models and possible mandates pension systems can use when deciding on their ESG actions and criteria. It’s also there to give smaller pension systems these types of tools to use because they may not be able to afford to develop them on their own. A big motivation for this work was to give these tools for free to smaller pension systems so they can have some kind of arrow in their quiver when they deal with asset managers.
What advice do you have for fund managers and GPs regarding ESG’s continued evolution?
My advice to GPs is to make sure you’re walking the talk. If you’re not interested in ESG and have another approach, make sure your limited partners understand that’s the kind of firm you are. Just be truthful with your LPs and tell them what you are and be who you say you are.
I am finding that there are many people who do not walk the talk. That makes it hard for LPs to distinguish between GPs who do really consider ESG and those who just say they do. I really value LPs who do a deep dive and make GPs show their investing acumen along with an understanding and commitment in promoting positive, profitable change towards inclusivity and sustainability.
This kind of work starts with investment committees who can ask these fundamental questions. Investment committees have to make sure they truly believe that environmental and social factors are important to them and are also a value driver. And LPs must talk to their GPs about exactly how they feel about ESG considerations as something that drives value.
Sometimes, LPs and GPs both learn that there may be short-term negatives when taking ESG seriously. Taking better care of your environment, your community, your customers and your people may come with costs. But there must be a line of sight of how investors can receive a return to influence that kind of behavior.
I think smart LPs drill down with their GPs this way. Unfortunately, there’s not enough of it being done.