It’s probably time for me to address the backlash against ESG. I can no longer pretend it will die off, or put an end to any criticism with the simple fact that without ESG considerations we will no longer have a planet in years to come.
It has gone further than that, and just when I thought we were taking a huge step forward. Not only do we have a few critics creating media storms, but whole states are banning ESG investments.
So, what exactly has happened?
This started when Tariq Fancy, former BlackRock sustainability head, last year decried ESG as a “dangerous placebo that harms the public interest”.
This year, HSBC Global Asset Management’s now-former head of responsible investments Stuart Kirk took to the stage at an FT conference to tell delegates “who cares if Miami is six meters underwater in 100 years”, “climate change is not a risk that we need to worry about” and “there is always some nutjob telling me about the end of the world”. Quite rightly, this almost broke the financial services internet. He later quit HSBC, while the bank tried to distance itself from Kirk and his presentation.
Meanwhile, an individual not known for his eloquence, Tesla CEO Elon Musk, also waded in to Tweet that ESG is “a scam” that’s “been weaponised by phony social justice warriors.”
See also: – Engaging with advisers on ESG backlash
But, and on a much more serious tone, we are seeing in the US some states effectively banning public investments that exclude fossil fuels.
Over the summer, Texas put in place a new law that prohibits state pensions from working with investment managers that exclude oil and gas companies, last month publishing a blacklist of companies and funds. Meanwhile, Florida effectively banned the state’s pensions from considering ESG factors in investment decisions as they should be prioritising investments with the highest returns possible. Other majority Republican states are considering their options and could well follow suit in what has been called a crusade against “woke” capitalism. (My colleague in the US Emile Hallez has been doing great job of unpacking these announcements and the implications over there, be sure to check out ESG Clarity US).
And this is where the asset management industry is facing real implications. The US has already been slow in considering and acting against the devastating impacts of climate change, despite feeling the full effects of drought and forest fires in recent years.
One commentator explained to ESG Clarity the US pension bans are causing serious headaches for the investment groups that are signed up to the Net Zero Asset Managers’ initiative. These groups are due to report in Q3 on the progress they have made in terms of increasing assets under management dedicated towards reaching net zero.
If huge swathes of their assets are sitting in these state pension funds, they may not be able to meet the targets they previously set themselves – and therefore risk being excluded as a signatory. And all in the lead up to COP27!
Of course, part of ESG is considering the social impact of company action, and for that reason only can we be sympathetic with the states’ decisions. But, as any fund manager that is up to speed on engagement and transitioning will tell you, looking at ways to encourage these firms to consider renewable options to take their business forward is something to consider. After all, there is literally no bottomless pit of fossil fuel resources – they will run out by 2060 if they continue to be depleted at the current rate (which of course we hope is not the case).
It is hard to know what to hope for in these circumstances, as any potential climate wake-up calls would be devastating.
What I can say is on ESG Clarity we will continue to report on the ever-changing landscape of sustainable investing, how sustainable business models will perform over the long term and, most importantly, will still have a business in years to come. As I wrote at the start, those that don’t will simply not exist.
And for those that don’t want to listen – we love a challenge!
