green finance + investment, ESG


see also greenwashing   >sustainability   25/11/2021  How Did Activision Pass the ESG Test? Asset managers seem willing to include any company paying lip service to progressive priorities.  By Allysia Finley

“How thoroughly do investment managers screen the companies in their environmental, social and governance funds? Not very, if the example of videogame company Activision Blizzard is typical. Activision—maker of “Call of Duty,” “World of Warcraft” and “Candy Crush Saga”—has drawn numerous complaints from employees and regulators of sexual misconduct, retaliation and discrimination, yet it’s included in many prominent ESG funds. In July the company was sued by the California Department of Fair Employment and Housing. Among other…”…   23/11/2021  ESG ratings’ big dogs may need to learn new tricks  By George Hay  23/11/2021 Transparency of ESG investment ratings faces regulatory scrutiny By Huw Jones   23/11/2021  Exclusive: Most investors could not care less about ESG and sustainability
by Michael Willems

“With COP26 only weeks behind us, more than half of UK investors admit sustainable investing is not a priority for them, with just under 45 per cent saying it is important and it is a priority in their investment portfolio. In fact, less than a third of British investors say COP26 and the UK government’s stance on climate change have accelerated their ESG investment plans to pump capital into sustainable assets. Even fewer, just 19 per cent, consider ESG investments to be a savvy financial strategy at present…”…

23/11/2021  Deutsche Bank’s Rising Star Has a Rapid Change of Fortune – DWS greenwashing investigations have cast an unwelcome light on Asoka Woehrmann, and on Deutsche’s asset-management ambitions.  By Steven Arons , Saijel Kishan

“At the start of this year Asoka Woehrmann was sitting pretty. The boss of Deutsche Bank AG’s asset-management arm, DWS Group, had hitched his firm’s wagon to the surge in investor demand for all things ESG — promising to make “sustainability the core of what we do” — and his rebrand was paying off. Client money was pouring in and DWS’s share price was rocketing. The hunt was on for big acquisitions. Behind the scenes, however, the green paint job was already starting to fade.

On a February conference call, DWS Chief Investment Officer Stefan Kreuzkamp warned of a “frozen middle” at the firm, referring to the many fund managers who were dubious about “environmental, social and governance” investing and weren’t engaged in doing it. DWS sustainability head Desiree Fixler was voicing similar concerns, prompting Woehrmann to tell her angrily, “Everybody hates you,” according to Fixler’s recounting in an email to DWS’s chairman.

It was the start of a chain of events that included Fixler’s March firing, her emergence as a whistleblower and a three-pronged investigation by the U.S. Department of Justice, the Securities and Exchange Commission and Germany’s BaFin into her allegations that DWS overstated its ESG capabilities. Woehrmann’s future is likely to be determined by where these probes end up. For fund managers everywhere — greedily eyeing an ESG market that’s expected to surpass $50 trillion of assets under management by 2025 — this is the first real test of how aggressively regulators will crack down on any “greenwashing” accusations against their industry. For Deutsche Bank and DWS, the stakes are higher still: Anything that hinders their involvement in the ESG gold rush would be bad news indeed.  DWS has said repeatedly that it did nothing wrong, and money is still flooding into its funds, suggesting clients are unfazed by the furor. But conversations with more than a dozen current and former DWS and Deutsche Bank staff, and other interested parties, indicate it wasn’t only Fixler who was asking awkward questions on ESG — as the Kreuzkamp comments show.  …

Apart from Fixler, everyone who spoke for this article wanted to remain anonymous when discussing private company matters. A DWS spokesperson said: “We reject the allegations of our former employee and cannot comment further given the ongoing labor law matter.” Fixler has sued the firm for wrongful dismissal…

DWS’s stock soared under current CEO before news of the probes broke. Heartened by his early successes, Woehrmann’s sustainable reboot went into overdrive. … Internally, though, not everyone was persuaded by the green tilt. …

…”… DWS isn’t alone and until recently all large fund companies had portfolio managers who were reluctant to embrace ESG considerations or even rejected them.” Alone or not, Fixler’s allegations have put DWS squarely in the sights of regulators. The former group sustainability officer, whose DWS contract only started six months before Woehrmann sacked her, says the firm’s “ESG integration” process — a way of screening investments — was being ignored lower down the organization.

Green Propaganda? On March 12, the day after her firing, DWS published its yearly results, labeling roughly half its assets under management as “ESG integrated.” According to the whistleblower, the figures were ESG “propaganda.” …  Claire Peel, the DWS chief financial officer, says the firm has been focused recently on talking to clients to put its side of the story. Judging by flow data, those talks are bearing fruit. Last month DWS reported a spike in new customer money. The greenwashing accusations have left “no material impact” on its business, Peel said on a recent conference call…   Equity analysts are talking positively about the firm again; Citigroup Inc.’s point out that sustainability rules are subjective, so they “struggle to see how regulators can hold DWS to account” …  But some investors aren’t yet convinced. The share price still hasn’t recovered from its August plunge, and sits more than 12% below where it was before the probes became public. In an industry where the biggest beasts are searching for juicy M&A targets, the relative strength of your market value matters. At DWS the strategy now is to sit out the controversy, with Woehrmann largely keeping out of the limelight. Everything depends on whether the DoJ, SEC and BaFin decide there’s a case to answer.”  2021  ESG Kriterien: Was es bei einem ESG Investment zu beachten gilt – Wofür der ESG-Ansatz steht, wofür er nicht steht und wie er sich von anderen nachhaltigen Investments unterscheidet. 16/11/2021 What’s Wrong With ESG Investing as Explained Through the Medium of Ohio

“What is Fifth Third Bancorp? … Fifth Third is very controversial. In the world of ESG ratings no one can agree on quite where the bank stands, exactly. Fifth Third’s Global ESG Rank from Standard & Poor’s comes in at 49 — handily beating industry averages on all three ESG metrics. At rival ESG ratings firm MSCI, however, the bank receives a paltry ‘B’ rating — well below average for its peer group and making it a laggard among 190 other banking companies. Using a simple translation framework, S&P’s ESG ranking works out to something like a ‘BBB,’ far above where MSCI rates the same company.

In this way, Middle America’s mid-sized bank is emblematic of a wider problem now plaguing one of the hottest corners of finance: No one can quite agree on where companies stand when it comes to the trifecta of ESG concerns — environmental, social and governance — that has morphed into a responsible investing craze worth trillions of dollars. In fact, a quick tour through Ohio — once a major Midwestern manufacturing capital before falling into ‘Rust Belt’ status in the 1980s as factories shifted abroad — can give us a peek into the failure of socially-responsible capitalism to so far actually improve society….2…   15/11/2021 How workers unknowingly fund the climate crisis with their pensions – As fossil fuels become more volatile, pensioners may be exposed to greater risk unless their funds divest  byJulia Rock of the Daily Poster

…”In early October, an oil pipeline owned by Amplify Energy spilled into the ocean in southern California. Up to 132,000 gallons of crude oil leaked into the waters off the coast of Orange county, possibly the largest oil spill in California in decades, prompting local, state, and federal criminal investigations. Complicating matters is that Amplify, the product of a merger and vulture capital restructuring of another bankrupt oil company, may not have enough cash to pay for cleanup or to decommission the pipeline. That means taxpayers could end up bearing the costs. This ecological and financial nightmare was in part funded by the retirement savings of school teachers in Pennsylvania…”…   9/11/2021  ESG investing has a blind spot that puts the $35 trillion industry’s sustainability promises in doubt: Supply chains

“If you own stocks, chances are good you have heard the term ESG. It stands for environmental, social and governance, and it’s a way to laud corporate leaders who take sustainability – including climate change – and social responsibility seriously, and punish those who do not.   In less than two decades since a United Nations report drew attention to the concept, ESG investing has evolved into a US$35 trillion industry. Money managers overseeing one-third of total U.S. assets under management said they used ESG criteria in 2020, and by 2025 global assets managed in portfolios labeled “ESG” are expected to reach $53 trillion.   These investments have gained momentum in part because they cater to investors’ growing desire to have a positive impact on society. By quantifying a company’s actions and outcomes on environmental, social and governance issues, ESG measures offer investors a way to make informed trading decisions.  However, investors’ trust in ESG funds may be misplaced. As scholars in the field of supply chain management and sustainable operations, we see a major flaw in how rating agencies, such as Bloomberg, MSCI and Sustainalytics, are measuring companies’ ESG risk: the performance of their supply chains…”…  11/11/2021   Stephen Dover   ESG: E and S are driving G

…”It is tempting to believe that ESG—and perhaps especially “E”—will impose heavy costs on businesses that will ultimately be borne by their owners and customers. While it is true that the costs—especially of a makeover of energy sources—are significant, in the long run the financial benefits—including for shareholders—may be even greater. To take one example, estimates from Bloomberg’s New Energy Finance group (BNEF) indicate that spending of US$5.8 trillion per annum through 2050 will be necessary to shift energy supply and infrastructure to mitigate climate change. Governments cannot fund that alone. The private economy and businesses will have to participate. Over US$3 trillion of green, social, sustainability, and sustainability-linked bonds have already been issued year to date, indicating that private capital is already shifting and investors are clearly eager to participate. Yet even these enormous sums represent the tip of the proverbial iceberg…”…

gm caw 2021 : nb: most funding will be via credit, not savings. Private credit issue has to conform to return on “investment” expectations. Hence ESG as greenwashing fossil profits unless tax has green-taxed the product out of profitabilty. In spite of all the green talk one is currently still subsidising fossils, let alone systematically  taxing them. Even though for once most economists, mainstream and beyond, recommend carbon tax, it’s not happening.

Cop-out CoP and the elephant in the room   9/11/2021  BlackRock, Brookfield Pipeline Bids Underscore an ESG Dilemma
By Silla Brush and Layan Odeh –  “Larry Fink is among Wall Street’s most outspoken leaders when it comes to climate change. He also just placed a bid on a major fossil-fuel asset…”…    8/11/2021 Head of Alternatives Association Calls for ESG Label to Be Dismantled – The environmental, social, and governance investing movement has an impressive array of goals — and that could be a problem. by John L. Bowman

…”If we are attempting to measure everything, we are actually measuring nothing.  “ESG” was coined in a 2004 United Nations study that precipitated the creation of the now ubiquitous UN Principles for Responsible Investment. At the time, the attention investment professionals and corporate leaders paid to climate change, gender diversity, and healthy labor practices was anemic. The world needed a tool by which to confront the status quo of hyperfinancialized capitalism, which sought to optimize profit at the expense of social outcomes. Combining these vital and neglected factors into a single thematic construct fostered a powerful and much overdo global pep rally that took unsustainable business models to task. While we still have much work to do in all of these disciplines, the ESG moniker has resulted in significant progress. …”…  3/11/2021 COP26  Global standards body takes aim at company ‘greenwashing’ claims  By Huw Jones
  • ISSB to be based in Frankfurt
  • Chair and vice-chair to be announced soon
  • New body seen as step to mandatory climate disclosures
  • First set of disclosures due in second half of 2022
  • Regulators looking at potential checks on disclosures

…”…”Greenwashing” by companies eager to massage their environmental credentials and increase their appeal to ethical investors came under scrutiny on Wednesday with the launch of a standards body that aims to weed out unjustified climate claims.  The International Sustainability Standards Board (ISSB) seeks to build on and replace a patchwork of voluntary disclosure practices that have had mixed success, with “baseline” global standards that companies could use to tell investors about the impact of climate change on their business….”…  27/10/2021 Ex-BlackRock executive Tariq Fancy on Larry Fink, Greta Thunberg and why ESG won’t save us – Baby boomers are not in the climate-change fight in the way Greta Thunberg’s generation is –  by Gabriel Friedman

….” Q: But during your tenure at BlackRock, lots of investors started to seek out funds or companies that claim to have an Environment Sustainability and Governance or ESG focus. From inside BlackRock, what’s the difference between the message that corporations are sending about ESG and what you think is actually happening?

A: I think the fundamental challenge is that even if corporations want to do that they can’t because the system is structured in a way to maximize profits and very often maximizing profits means doing something that is not good for society, including contributing to climate change. Companies will say that they’re doing stuff — I don’t call them liars. I would say that whatever they’re doing has to serve some purpose of the business and add shareholder value, otherwise, they really wouldn’t be doing it. And if there’s no one telling you and actually validating what it means to be green, or to be sustainable, then you have a race to the bottom where every company and every participant wants to say they are doing it. To the extent that companies can do things on the margin under the guise of ESG, which I think is definitely possible, in some form they probably have been doing that for decades. The problem with ESG, as you could see in the last number of years, is it grows alongside inequality and carbon emissions and all the things that it’s meant to address. So on the margins, I think CEOs can do something and stakeholder capitalism has some relevance, but it’s not something we can rely on for society’s most important challenges. And I’d argue those are inequality and climate change.

… Q: You have said that the U.S, and Europe are starting to look into definitions of green. Are you optimistic that this could mark a sweeping rule change that would help create a market solution?

A: No, I’m not. I think there’s a small problem, and there’s a big problem. The small problem is that many of these funds are mislabelled. They claim to do one thing, but you know, you dig underneath the hood and you know, they’re mislabelled, or they’re playing fast and loose. But that’s the minor problem.

The major problem is that even if they’re labelled correctly, they don’t have any real world impact. For me to create real world impacts It’s about regulating the real economy. Put it this way, if you want less carbon emissions, you’d be better off going and putting a carbon tax on all the actual emitters of carbon. If you make an underlying business activity less profitable, less capital will flow there.  ….

… The second point, is, what needs to happen is a significant debate within the business community about what is responsible business? We have just seen a systemic crisis, with the pandemic , where we needed to flatten the curve, and we realized that that required government action to do it. I don’t think business leaders have a leg to stand on to say we don’t need government action to address climate change.

And they’re saying that now: Larry Fink said, at the beginning of this year that I prefer capitalists to self-regulate. The Business Roundtable has been lobbying aggressively against climate legislation, and against carbon taxes. The same Business Roundtable came out with a statement on stakeholder capitalism. So they’re trying to have their cake and eat it too.  …   And so, just like the Business Roundtable supported closing schools and making masks mandatory indoors during COVID, they have to support aggressive climate legislation. They’re not doing it today for the simple reason that the timeline is so long, and it’s outside of the guise of their incentives.

With climate change, they’re able to just kick the can down the road, because the truth is their incentives are short term. That’s the fundamental issue is timelines and I’m optimistic because I think this is an intergenerational fight that’s going to start rolling. The reaction I’m seeing now is that young people, they’re realizing, this is not serving us. If you’re a 22-year-old at BlackRock, you’re at the bottom of the totem pole, and so you gain the least from the status quo and you’re most at risk from inaction.

And actually, if you’re Larry Fink, who’s 68, it’s the exact opposite: you’re at the top of the totem pole, gain the most from the current system and has the least at risk from the consequences of inaction. There’s a significant element of privilege for business leaders who are saying we’re all in this together. Frankly, they’re baby boomers who really are not in this together in the same way that Greta Thunberg’s generation would be.”  27/10/2021  Wall Street’s new ‘sustainable’ investing fad is a scam  by Bernard Sharfman  26/10/2021  Meet 20 (small) companies looking to save the future of ESG  By Lucinda Shen

“Small things can make a big difference. While the adage is usually wielded in the context of changing habits for the better, it also applies here to Fortune’s annual Impact 20 list. Our annual Change the World list points to the giants of industry doing good with their dollars. By contrast, the Impact 20 points to relatively smaller venture-capital and private-equity-backed companies looking to improve lives as part of their business model—turning ESG and sustainability from buzzy terms into simple parts of everyday operations. …”…    21/10/2021  ESG and shareholder activism: A tsunami is coming to Silicon Valley Derek Zaba, Sharon Flanagan, Martin Wellington

…”For the first time, investor pressure related to an ESG issue (in this case, climate change), directly led to substantial turnover in the board of a public company. Activist shareholders are tapping into new and powerful ESG themes as leverage in their activist campaigns to change control and strategy at public companies.

Is the technology sector next? – Historically, the pattern of investor pressure on governance issues (the “G” in ESG) in public companies is to successively tackle issue after issue, winning on one issue and then moving on to the next. One good example of this is the migration of public companies to have annual elections for all directors for a one-year term rather than staggered elections of a portion of the directors for a three-year term — a so-called “classified board.”…”…  16/10/2021  B Sabrier : ESG illusion raises ethical issues 

esg illusion ft 10 2021  20/9/2021 Central bank group BIS warns of green asset bubble risk  By Marc Jones 

…”The central bank to the world’s central banks, the Bank for International Settlements, has warned of the growing risk of a price bubble in environmentally friendly-focused asset markets.  Increasing urgency to limit global warming and tackle other issues such as racial and social inequality has seen Environmental, Social and Governance (ESG) investing explode in popularity in recent years.  Some estimates indicate ESG-focused assets have soared to a value of $35 trillion and now account for more than a third of all assets professionally managed by banks and investment funds. A narrower definition including only exchange-traded funds (ETFs) and mutual funds with ESG or socially responsible investment (SRI) mandates points to even faster, tenfold growth, to approximately $2 trillion. This is evidenced in assets such as clean energy and electric car stocks and green bonds, which have soared in recent years. …

Claudio Borio, head of its monetary and economic department, referred to it as the “green bubble” risk, highlighting how the surge in ETFs and mutual funds was comparable to parts of the mortgage backed security market in the runup to the global financial crisis. …

Current holdings of ESG linked bonds are only estimated to account for about 1% of total bond portfolios for both U.S. insurance companies and European banks. Borio did also warn of “definitional risk” and of so-called “greenwashing”, where the environmental benefits of certain assets were potentially being over-exaggerated. If those exaggerations are exposed, values could then plunge. “…   4/9/2021  Green gilts risk being a distraction from the hard graft of hitting net zero  by Philip Aldrick

The government will issue its first green bond in just over two weeks’ time. This revolutionary moment will mean that the Debt Management Office will sell UK public debt through a group of gilt-edged market-makers to pension funds and other investors to pay for public spending. Just as the DMO does once or twice every week — only this time, the gilts will be “green”, because the money will be solely for “eligible green projects”, such as zero-emission buses, investment in wind energy, subsidies for household heat pumps and flood defences. The kind of spending, in other words, that the government is committed to making to hit its legislated net zero target, whether or not the gilts are colour-stamped.

Green gilts are a PR stunt.   1/9/2021  Regulators Intensify ESG Scrutiny as Greenwashing Explodes – Pressure is increasing on fund managers to show they’re being truthful with customers about what they’re selling.  By Tim Quinson  8/2021  The ESG investing industry is dangerous – A BlackRock dissident speaks truth  31/8/2021  How bankers really feel about diversity and ESG  by Sarah Butcher

A new study* of six  front office investment bankers by academics at University College London found that while money is a key incentive for people going into banking jobs, it’s not the only reason people choose to enter the industry. ….

…”As anyone who’s tried to quit banking knows, however, leaving isn’t that easy. Some of those interviewed noted that the pay was a “shackle” and that it wasn’t entirely clear what they would do instead. One noted that, “my brother would tell you that I am a total capitalist.” Another said that ESG was all very well, as long as it didn’t affect his pay.  Ultimately, most of those interviewed said that the main purpose of banks was to keep clients and shareholders happy rather than to pursue broader social functions. “There are people in the bank who are interested in it, equally there are a lot of people who don’t give a sh*t. You know for them, it’s a job – they want to make money, they don’t want to think too much about this kind of stuff,” concluded one of the interviewees.”

*Perspectives on Corporate, Social, and Employee Purpose among Investment Bankers: A Qualitative Research Study   31/7/2021 Big investors demand annual vote on companies’ net zero plans:
investors want to vote on hollow zero pledging  6/7/2021  Liontrust flop is a warning the ESG blancmange is starting to wobble – by Patrick Hosking  
“Investment houses have grown accustomed to one certainty in recent years. Label a fund “sustainable” or “responsible” or give it an “impact investment” badge and, hey presto, the money from end investors floods in. People want to feel they are doing their bit, whether helping to combat planet warming or slave labour. According to the Investment Association, retail purchases of funds it defines as sustainable have been running at about £3 billion a quarter since the pandemic started.”…   6/2021  Banks pledge to fight climate crisis – but their boards have deep links with fossil fuels – by Emily Holden ,Emily Atkin  22/5/2021  A green bubble? We dissect the investment boom Investors of all stripes are getting on board   11/5/2021  A global accord for sustainable finance –  by Fabio Panetta

As the Nobel laureate economist William Nordhaus reminds us, climate change is the quintessential global externality. …  Three priorities stand out on the international agenda. The first is the need to increase global carbon prices. Putting a higher price on carbon is the most cost-effective way to reduce emissions at the necessary scale and speed. … Currently, carbon prices are far too low … and …  only 5% of global greenhouse-gas emissions are priced within the range required … The second priority is to … “build back better.” … The third priority goes to the heart of the financial system and central banking: financing the green transition

Sustainable-finance products – such as green lending, green and sustainable bonds, and funds with environmental, social, and governance (ESG) characteristics – have grown dramatically in recent years. Unfortunately, the field suffers from information asymmetries and insufficient transparency. … The resulting edifice of inconsistent and incomparable standards, definitions, and metrics has fragmented sustainable-finance markets, reducing their efficiency and limiting the cross-border availability of capital for green investment. As jurisdictions compete to attract finance, the risk of regulatory arbitrage and a race to the bottom has grown. If left unaddressed, this trend could result in lower standards globally, increasing the likelihood of greenwashing.

But we now have an opportunity to start devising a common global approach. A key first step is to agree on minimum standards for corporate disclosures. …  To that end, the EU’s approach – including the ongoing revision of the Corporate Sustainability Financial Reporting Directive – represents an advanced benchmark toward which any international standard should aim.

For a common standard to launch a race to the top, it must not fall short of the best international practices. It should cover all ESG aspects of sustainability. And it should require companies to disclose not just issues that influence enterprise value, but also information on the company’s broader environmental and social impact (known as “double materiality”).

A second and even greater challenge is to ensure that countries develop consistent classifications of what counts as sustainable investment. If an activity or asset is considered sustainable in one country but unsustainable in another, there cannot be a truly global sustainable-finance market.

To ensure a global level playing field, today’s leaders should aim for an agreement on common principles for well-functioning and globally coherent taxonomies. Just as governments need to be mindful of the risk of carbon leakage, they must account for the risk of carbon financing leakage.

Finally, we need to ensure that all segments of financial activity remain aligned with broader climate objectives. The enormous energy consumption and associated CO2 emissions of crypto-asset mining could undermine global sustainability efforts. Bitcoin alone is already consuming more electricity than the Netherlands. Controlling and limiting the environmental impact of crypto assets, including through regulation and taxation, should be part of the global discussion.

Climate change and sustainability are global challenges that require global solutions – and nowhere more so than in the financial sector. The current political environment offers us a rare opportunity to make substantial progress. We must not waste it.”   9/4/2021  Mark Carney’s big stumble at Brookfield intensifies focus on net-zero emissions claims – Controversy over so-called ‘avoided emissions’ highlights creative carbon accounting issues  – FT Camilla Hodgson

“… “We really need convergence and more direction on, and parameters around, what is a credible net zero commitment,” said Sagarika Chatterjee, director of climate change at the UN-backed Principles for Responsible Investment. “Only a subset” of corporate targets are “credible.”…”

newyorker 3/4/2021 The Powerful New Financial Argument for Fossil-Fuel Divestment – A report by BlackRock, the world’s largest investment house, shows that those who have divested have profited not only morally but also financially. By Bill McKibben   27/3/2021  The University of Michigan divesting from fossil fuels shows that change is here   by Bill McKibben – Relentless student pressure and the cold facts of the bottom line forced an institution with close ties to the car industry to reverse course in just six years  3/2021 Powerful investor group finds net zero pledges distant and hollow…   3/2021 ESG investment still founded on ‘the growth delusion’ – Charitable investors look beyond ESG, exploring how investment strategies can address planetary boundaries   18 /3/2021  THE FIRST CLIMATE SMART SOVEREIGN CREDIT RATINGS  by Fred Lewsey.  “As climate change batters national economies, debts will become harder and more expensive to service” Dr Matthew Agarwala

Ratings agencies took a reputational hit for failing to anticipate the 2008 Financial Crisis,” said lead author Dr Patrycja Klusak, a researcher at Cambridge’s Bennett Institute for Public Policy and lecturer at UEA. “It is imperative that they are proactive in reflecting the much larger consequences of climate change now.” Researchers say the current tangle of green finance indicators such as ‘Environmental, Social, and Governance’ (ESG) ratings and unregulated, ad hoc corporate disclosures are detached from the science – and the latest study shows they don’t have to be.  2/2021 The large cap bias in ESG investing  by Joachim Klement

“A couple of months ago, the European Commission published a really good study on the current state of play in ESG data, ratings, and research. It is essentially a 214-page expose of what is wrong with ESG data providers and the mess they created that keeps investors and companies confused and results in slower adoption of ESG. If you aren’t a specialist in ESG you might be particularly interested to learn how data providers collect their data, which is explained in some detail in the study (as well as many other pitfalls that non-ESG specialists typically fall into). It’s scary and shows why it still is so easy for greenwashers to get away with it. But one thing that surprised me was to see how ESG investors inadvertently create a large cap bias in their portfolios. First, look at the chart below which are the responses from 31 large asset management firms on how they use ESG ratings…”…  11/02/21  Are global ESG reporting standards possible?  BY Andrew Bruce   8/2020  – ESG investing updates

Good morning. Those of you who have read too many of my anti-ESG screeds already may want to skip this letter. But I have no plans to shut up on this topic. We’ve got big global problems. I am a capitalist red in tooth and claw, but I just can’t see how financial markets have a meaningful part to play in solving these problems until citizens and governments act first and decisively. 

Tariq Fancy is right about the ESG investment industry. Almost everything that Tariq Fancy says about environmental, social and corporate governance, or ESG, investing has been said before, in one form or another. The significance of what he writes — most recently in a long essay on Medium — is how he says it and who he is. He was the chief investment officer for sustainable investing at BlackRock, which is the most important institutional face of the claim that ESG investing has an important role to play in helping the environment, promoting the social good, holding the corporate world accountable, and so on.  Fancy thinks the ESG project is intellectually bankrupt and is damaging to the most important causes it purports to support. I think this too (at least the “E” and “S” parts; there may be hope for “G”), but it means a lot more coming from him, and he does not hold back. He says BlackRock’s position on global warming is analogous to the National Rifle Association’s on US gun deaths:

In my role at BlackRock, I was helping to popularise an idea that the answer to a sustainable future runs through ESG and sustainability and green products, or in other words, that the answer to the market’s failure to serve the long-term public interest is, of course, more market. A bit like the NRA’s traditional answer to mass shootings and related concerns around public safety — the answer is more guns.   He says, furthermore, that the senior executives he used to work with are way too smart to believe their own claims about ESG:  They must know that they’re exaggerating the degree of overlap between purpose and profit . . . These leaders must know that there is no way the set of ideas they’ve proposed are even close to being up to the challenge of solving the runaway long-term problems . . . And right now all of the other stuff they’re saying — the marketing gobbledegook — is actively misleading people.   I urge you to read Fancy’s essay, which is full of powerful and darkly funny anecdotes about high finance. But because he touches on so many of the key arguments against the ESG industrial complex, it’s a good excuse to lay them out.

Argument one. The only really coherent case for ESG investing changing the world is that it raises the cost of capital for “bad” companies (however you or your fund manager want to define “bad”), which means they have incrementally less financing to do bad stuff. But this argument does not get much airtime from investment companies, because it does not sell high-fee financial products. It is too technical and cuts directly against the idea that ESG investors will make superior returns, in addition to doing good. When Fancy made the cost of capital argument to another BlackRock exec about a low-carbon fund, here’s what happened: “But didn’t you see the talking points?” insisted [the exec], referring to a set of oversimplified bullet points I had not seen arrive in my inbox of overflowing and unread emails the day before. They made clear their view: the key to selling the product was to keep it simple, even if that meant glossing over how it directly contributed to fighting climate change.

Argument two. If ESG investing did provide higher returns — as the industry both explicitly and implicitly promises — then profit-seeking investment managers would be doing all the work for us, and we wouldn’t have to be having this damn conversation in the first place. In one chat with a portfolio manager of stocks, I noticed that his subtle dismissal of the latest research declaring ESG-data-is a-godsend! had a “thou doth protest too much” air to it. It wasn’t hard to guess why . . . The portfolio manager’s view was that they’re already focused on performance since it usually determines their compensation, so if ESG information was truly useful they’d use it without being asked

Argument three. There is no good reason to think that the investment horizon of companies and investors should approximate the timescales of the big collective problems we face. For this and other reasons, the overlap between purpose and profit is small. Most of what the ESG cheerleaders [at BlackRock] wanted to believe should matter for portfolio managers did not matter in reality. It was no one’s fault: the reality is that much of what matters to society simply doesn’t affect the returns of a particular investment strategy. Often this is because of the timeline of the underlying investment: many strategies have a very short time horizon, meaning that longer-term ESG issues aren’t particularly relevant.

Argument four. The core mechanism of ESG investing is divestment, but when an investor sells a security in the secondary market, another buys. All the ESG selling may drive down the price at which the buyers buy, giving them an opportunity for juicy returns as the price recovers. There’s a difference between excusing yourself of something you do not wish to partake in and actively fighting against something you think needs to stop for everyone’s sake. Divestment, which often seems to get confused with boycotts, has no clear real-world impact since 10 per cent of the market not buying your stock is not the same as 10 per cent of your customers not buying your product . . . The first likely makes no difference at all since others will happily own it and will bid it up to fair value in the process.

Argument five. Giving people the dumb idea that shifting their savings from one investment fund to another is going to help materially with, say, climate change creates a dangerous distraction from solutions that fit the scale of the problem, all of which involve changing the rules of capitalism through regulation.  Working with academics and a polling firm, Fancy polled 3,000 people, showing them headlines about ESG risks in the financial system, and asked respondents whether the headlines described an idea useful in the fight against climate change. One headline was about efforts to protect portfolios from climate risk.  I suspected that every time people read the latest such headline about guarding against climate change-related risks in the financial system, they mistakenly believed that these efforts were helpful in the fight against climate change itself. In fact, the survey found that not only was that true, but that most people think that this kind of work is just as helpful as any other pledge, such as large-scale organisational commitments to become net zero carbon emitters. Unfortunately, protecting an investment portfolio from the disastrous effects of climate change is not the same thing as preventing those disastrous effects from occurring in the first place.

Argument six. Green bonds open the way for a neat little capital arbitrage by companies and governments. It’s not totally clear if [green bonds] create much positive environmental impact . . . since most companies have a few qualifying green initiatives that they can raise green bonds to specifically fund while not increasing or altering their overall plans. And nothing stops them from pursuing decidedly non-green activities with their other sources of funding.

Argument seven. To really change the relative financial calculus for “bad” versus “good” companies, ESG funds would have to be orders of magnitude bigger than they are now. They are not going to get big enough.  [Is] a $2bn fund enough to make a difference if the majority of the global economy, with nearly $6tn in private equity alone and some $360tn of global wealth overall (3,000 times and 180,000 times larger, respectively), continue operating business as usual? 

Argument eight. Corporations, and the whole legal and social apparatus in which they sit, were built around the idea that companies exist to maximise shareholder wealth. That’s what they are designed to do and are required to do. Thinking that fiddling around in the financial markets is going to make companies fit for a radically different purpose — helping with broad social problems driven by economic externalities and tricky collective action problems — is simply bonkers.  From top to bottom, from CEO compensation to divisional budgeting and P&L to managerial targets, structures and incentives, we’ve built private firms from the ground up to do one thing really well: extract profits . . . The vast majority of large US companies are incorporated in Delaware, which is perceived as shareholder-friendly and where the courts have been clear that a corporation’s reason for existence is to serve shareholders . . . The foundation of capitalism is strict adherence to fiduciary obligation . . . This adherence to fiduciary obligation “gives credibility to capitalism by addressing the agency cost risk of entrusting money to others”.

Argument nine. Do you really want financial industry bigwigs making choices about how to solve our biggest social problems? Fancy quotes one of the signatories to the hilariously empty and meaningless 2019 Business Roundtable statement on the purpose of the corporation: “There were times that I felt like Thomas Jefferson.” So said Johnson & Johnson CEO Alex Gorsky, who led the drafting of the BRT’s groundbreaking statement on stakeholder value. It’s easy to understand why he felt that way, given the weight of such lofty words about the future direction of not just business, but indeed society in general. But not enough people have asked a simple question: does it make sense that a CEO should feel like a famous US president? Only one of them is elected by the people

I myself find argument five particularly important. From what I understand, it’s clear we need, for example, a whopping big carbon tax, and soon, or we’re cooked. But we have some of the smartest, most powerful people in the corporate world rattling on about this sustainable investing drivel instead. It scares me.   2/2020   How Vanguard, Fidelity, and Others Embrace ESG Investing – Sustainable investing strategies have gone mainstream; here’s how some of the best money managers are doing it.  by Russel Kinnel

“Mentioned: Apple Inc (AAPL), TotalEnergies SE (TTE), BHP Group Ltd (BHP), TIAA-CREF Core Impact Bond Instl (TSBIX), Fidelity® U.S. Sustainability Index (FITLX), Vanguard FTSE Social Index Admiral (VFTAX), Vanguard Global ESG Select Stk Admiral (VESGX), Parnassus Mid-Cap (PARMX)..”…  2019  More than 200 of the biggest global companies report almost a trillion dollars at risk from climate impacts, and many of those effects are likely to hit within five years. California’s PG&E — one of the nation’s largest utilities — filed for bankruptcy protection after the company faced billions in liabilities for its role in two years of massive Northern California wildfires. The company is the nation’s first victim in what’s being called corporate climate change. 2019 Why industry is going green on the quiet” Cassandra Coburn The manufacturer in question does not want to tell anyone about its groundbreaking water-conserving techniques – not even the companies it supplies. It is one of many practising “secret sustainability”, whereby innovations are silently enacted and kept from the rest of the industry. This phenomenon is not limited to the clothing industry. The UK organic groceries market has been expanding steadily for the past eight years. The Soil Association estimates that it increased by 5.3% in the past 12 months and is now worth £2.2bn a year. So you would expect any food or drink manufacturer renouncing pesticides and artificial fertilisers in favour of organic production methods to let potential customers know, if not via a PR campaign, then at least on the label or via accreditation. … To flag one area of innovation might attract attention to less sustainable areas, sparking accusations of green-washing …”  2003   Sozial-ökologische Ratings am Kapitalmarkt – Transparenzstudie zur Beschreibung konkurrierender Konzepte zur Nachhaltigkeitsmessung auf deutschsprachigen Finanzmärkten  Henry Schäfer,  Elisabeth Preller