featured/intro – updates below
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.
green finance – investment – ESG – greenwashing – updates – 10-2023
Wall Street rushed to embrace sustainable investing just a few years ago. Now it is quietly closing funds or scrubbing their names after disappointing returns that have investors cashing out billions.The about-face comes after tightened regulatory oversight, higher interest rates that have slammed clean-energy stocks and a backlash that has made environmental, social and corporate-governance investing a political target….
…In 2021, Hartford Funds inserted “sustainable” into the name of its core bond product and subsequently saw investors pour $100 million into it. But after missing its own performance targets last year, Hartford is switching gears again. Later this month, the bond fund will be known as the Core Fixed Income Fund and potentially sell some of the holdings that made it sustainable when it pivots to a conventional investment strategy, according to company filings. Hartford declined to comment on why it is rebranding the fund. At least five other funds also announced they would drop their ESG mandates this year, while another 32 sustainable funds will close, according to data compiled by Morningstar and The Wall Street Journal.
The retreat comes after investors withdrew more than $14 billion from sustainable funds this year, leaving them with $299 billion, according to Morningstar. Conventional funds also lost money, but the pain was more acute for climate and other thematic products hit by high interest rates and other factors. Ron Rice, vice president of marketing at Pacific Financial, said a legal fight over the Labor Department’s rule letting retirement-fund managers consider ESG factors may have weighed on the popularity of his firm’s sustainable products. “We found that the demand for ESG investing, by financial professionals working with retirement-plan participants, was more limited than we anticipated,” he said. Earlier this year, Pacific Financial removed sustainability from the name of three mutual funds then holding more than $187 million. All three funds subsequently saw their assets under management jump, Rice said.
Political pressure could be factoring into the changes as well. Republican presidential candidate Vivek Ramaswamy has been a vocal ESG critic. Last year, Florida said it was pulling $2 billion of its assets managed by BlackRock in part due to the company’s support of ESG. Meanwhile, the Securities and Exchange Commission is stepping up oversight of the space and recently adopted a rule to prevent misleading naming conventions. Funds have roughly two to three years to comply, depending on their size. Already, the SEC is policing the space more closely. In September, Deutsche Bank’s investment arm, DWS Investment Management Americas, agreed to pay $19 million to settle an investigation into alleged greenwashing by the firm for overstating how the company factored ESG data into investment decisions.
At the end of the month, DWS will liquidate a mutual fund the company rebranded as ESG in 2019. DWS said it addressed the matters with the SEC and that it decided to liquidate the fund due to its small size. Despite the closures, new ESG funds continue to pop up. Last year, Naperville, Ill.-based Calamos Investments said it would close a $4 million sustainable equities fund that had lagged behind its benchmark from inception, according to company filings. Then earlier this year, the firm came up with two new ESG funds. They have the same strategy as the closed fund, but brandish NBA superstar Giannis Antetokounmpo’s name. “While it’s not working currently, we expect that over the long term it will add value to the strategy,” said Turisch of Calamos.
relevante-oekonomik.com 8 -11-2023 Der Dogmatismus der EZB erreicht neue Dimensionen – von Heiner Flassbeck, Friederike Spiecker
…Was ist die Bedeutung der letzten Meile, von der Isabel Schnabel spricht, wenn offensichtlich ist, dass es auch für diese Meile dort, wo man es erwarten müsste, keinerlei inflationären Druck in der Pipeline gibt? Die EZB hatte im letzten März selbst die Erzeugerpreise als wichtigste Pipeline für die Verbraucherpreise angesehen (wie hier belegt). Davon will sie jetzt nichts mehr wissen. Sollte dagegen wiederum ein Energie-Schock von außen kommen, wäre es, wie wir hier gezeigt haben, absurd, würde man erneut mit geldpolitischer Restriktion reagieren. Noch absurder als das Letzte-Meile-Argument ist die Warnung der EZB-Präsidentin vor überzogenen Lohnabschlüssen im nächsten Jahr. Man muss sich vorstellen: Trotz Preissteigerungsraten von bis zu zehn Prozent in einzelnen Monaten sind die Gewerkschaften bei den Tarifabschlüssen bisher sehr vernünftig gewesen und haben mit Einmalzahlungen die für sie sehr problematische, aber eindeutig temporäre Phase hoher Preissteigerungsraten überbrückt. Trotz durchaus beachtlicher Einmalzahlungen sind die Arbeitskostenzuwächse selbst im zweiten Quartal dieses Jahres unter 5 Prozent geblieben (wie hier nachzulesen). Nun, wo die Preissteigerungsraten fast wieder normal sind, befürchtet die EZB, es könne zu Lohnzuwächsen kommen, die die Preisstabilität gefährden, und will deswegen Zinssenkungen bis weit in das Jahr 2024 hinein verschieben.
Offensichtlich glaubt Frau Lagarde immer noch an die Mär vom angespannten europäischen Arbeitsmarkt, an dem sich neuerdings die Arbeitnehmer alles leisten können. Ganz abgesehen davon, dass die Arbeitslosigkeit in Deutschland aktuell sichtbar steigt und auch im Rest der EWU angesichts schlechter Umfragen Rezession droht, sind die Niveaus der Arbeitslosigkeit in praktisch allen Ländern weit von Werten wie in den 1970er Jahren entfernt, bei denen die Arbeitnehmer extrem hohe Lohnsteigerungen durchsetzen konnten. …
Für Europa ist es eine wirkliche Katastrophe, dass sich die EZB von dem einmal eingeschlagenen falschen Kurs nicht abbringen lässt, obwohl die empirische Evidenz inzwischen überwältigend ist, die zeigt, dass die hohen Preissteigerungsraten in Europa ein temporäres Phänomen waren. Auch die vielbeschworenen Zweitrundeneffekte bei den Löhnen, die eine Inflationsgefahr hätten mit sich bringen können, sind in den großen EWU-Ländern, die nun einmal den für die EZB relevanten Durchschnittswert der Preissteigerungsraten im Wesentlichen bestimmen, nicht eingetreten. Es ist an der Zeit, dass sich die Politik einmischt: Sie sollte die Spitze der EZB auffordern, sich mit der auf allen Ebenen eingetretenen Preisberuhigung auseinanderzusetzen, anstatt immer wieder neue Thesen aufzustellen, die nur der eigenen Rechtfertigung dienen, nicht aber dem Wohl Europas. Wenn die Energiepreise aufgrund der aktuellen geopolitischen Konflikte erneut steigen und einen Preisschub auf breiter Front nach sich ziehen sollten, müsste die EZB nach ihrem bisher bekundeten Verständnis der Wirkungszusammenhänge die Zinsen sogar weiter erhöhen. Die EZB säße dann noch mehr in der Zwickmühle zwischen Befördern einer scharfen Rezession in Europa und Verlust der eigenen Glaubwürdigkeit..
ft.com 21-10-2023 More than 50,000 companies to report climate impact in EU after pushback fails – by Alice Hancock
ft.com 3-10-2023 ESG ratings: whose interests do they serve? Regulators and politicians are focusing on the accuracy, transparency and potential for conflicts of interest with sustainability scores – by Kenza Bryan
…The Gulf of Mexico spill brought ESG risks to the world’s attention and made investors more wary of companies that exposed them to further fall-out. The sector has since been transformed. ESG ratings now influence, and in some cases dictate, which stocks and bonds make it into the $2.8tn of investment funds that are, according to Morningstar, marketed as sustainable. Its products lend legitimacy to the companies and investors who claim to be helping hit the Paris Agreement goal of limiting global warming to well below 2C above pre-industrial levels. Yet that power is now coming under intense formal scrutiny. For the first time, regulators and politicians in Europe, Asia and the US are determined to bring more transparency to how the ratings are derived and ask questions about whose interests they really serve. European lawmakers will later this year debate a proposed law that would force ESG rating agencies to break from their consultancy arms, disclose more details about their methodologies and formally register with authorities. In India, the securities regulator has insisted that agencies publish their methodologies.
In the US, where there has been a political backlash against some aspects of ESG, Republican politicians have accused data providers of arming investors with analysis that could prompt them to ditch red-state oil and gas companies. A Republican member of the US Senate banking committee asked a dozen companies last year to share information on how they come up with ratings. ESG ratings look and sound like the familiar credit ratings produced by S&P, Fitch or Moody’s. In reality, there are two crucial differences: analysts are not yet subject to regulatory scrutiny on conflicts of interest, and they work in part on unaudited environmental, social and governance data, rather than in audited financial statements.
The European Commission said in June that potential conflicts of interest plague ESG data giants in three areas: the sale of ratings, data and indices to the same investor clients; the sale of consultancy services to help companies improve their ratings; and the practice of charging companies to display their own rating on financial products. Daniel Cash, a credit ratings specialist and ESG ratings lead at the Hong Kong law firm Ben McQuhae, compares this situation to how credit rating agencies operated before the 2008 financial crisis, which drew the attention of regulators to the potential for ratings to be skewed towards paying clients. “They were using consultancy services as cash cows and essentially the rating agencies are doing the same thing,” he says. The ratings agencies insist they have taken a number of steps to professionalise over the last decade, including erecting informal “Chinese walls” to separate analysts from client-facing teams, and to counter concerns that scores can be improperly influenced. They also point out that it is investors who usually pay for ESG ratings, bypassing one of the issues that has been a source of criticism of credit ratings, which are often paid for by the companies themselves.
There is a further potential problem for the industry — the gap between the perception of what ESG ratings assess and what they actually demonstrate. The scores are not designed to measure corporate performance on carbon emissions or pollution. Instead, the raters measure how well a company is managing environmental, social and governance risks to their own bottom line, for example from hurricanes or carbon taxes. “There is disillusion and confusion when people realise the labels mean very little or do not measure what they want them to measure,” says Fabiola Schneider, an assistant finance professor at Dublin City University and co-lead of the GreenWatch project to spot exaggerated claims in sustainable finance. “And you have investors trying to exploit that confusion and attract capital by appearing greener than everyone else.”
Attempts by regulators in recent years to create formal definitions of a “sustainable”, “transition”, “green” or “low-carbon” investment have challenged the way these ratings have been used by financial institutions over the past decade. This has fuelled demand for data that can justify the use of these terms and highlighted deficiencies in the ESG rating system. “The finance industry has seen the opportunity [from the rise of the ESG data industry] to sell a lot of people a lot of new products,” says Lindsey Stewart, head of investment stewardship research at analytics company Morningstar, itself one of the biggest providers of ESG data through its subsidiary Sustainalytics. “Now people are expecting all those sustainable products to do something and it’s not obvious to everybody that they do.”
A concentrated market – Scrutiny from regulators is hitting the ratings providers after a decade of mergers and acquisitions that have created a handful of dominant players — and which have sometimes blurred the distinction between companies that offer ESG ratings, and those that provide market indices or traditional credit ratings. The biggest company in the sector is MSCI, a provider of global market indices. It has retained its position in ESG ratings by diversifying earlier and faster than its rivals, including by spending $913mn on Burgiss, a New Jersey-based specialist in data about private assets, in an acquisition completed in August. The other large players include the London Stock Exchange Group, proxy adviser ISS, Morningstar and credit rating agencies S&P Global and Moody’s. In addition to growing market concentration, the handful of companies that dominate ESG data and ratings also sell most of the lucrative indices on which many sustainable funds are built. According to a paper published by Jan Fichtner, an economist at Germany’s Bundesbank, and co-authors at the Danish Institute for International Studies in May, MSCI had around five times the market share of the second-largest index provider for sustainable funds — S&P Dow Jones Indices. Indices built by MSCI were used in 56 per cent of large sustainable funds, rising to 68 per cent for passive funds that track an index. MSCI describes its indices work as “functionally separate” from its ratings business, which is managed separately “with editorial independence”. This level of influence over interconnected markets has given a handful of rating agencies the ability to define what an ideal “green” stock, bond, fund or investing strategy looks like, says Fichtner. “Only two or three ESG providers in the end matter,” he says. “They will de facto determine what ESG is and all investors will follow.” Potential conflicts of interest stem from ESG data giants’ reliance on data produced by the companies they rate, and the potential for either investors or companies to influence the score. Some in the industry suggest, for example, that companies can influence ratings by spending more on consultants and other services that can help boost scores.
Publicly traded companies surveyed by the sustainability consultancy ERM last year said they spent between $220,000 and $480,000 a year to pay rating agencies to obtain their ESG score, or on consultancy services and other digital tools to improve their score. Investors it surveyed spent between $175,000 and $360,000 for rating, data and benchmarks. Will Ballard, head of equities at Border to Coast, which manages UK government pension schemes, raises concerns about data sent to him and other clients by MSCI. Larger companies and those who interacted “frequently”, more than 10 times, with MSCI, were both more likely to have a high ESG rating, the research showed. “The size of the skew in the data is such that you would be forgiven for leaping to conclusions and suggesting that the key determinant for a high ESG rating is simply your market cap,” he says. This points not to deliberate wrongdoing by MSCI, he adds, but the “scale of the [data disclosure] demands placed on companies”. MSCI said its ratings methodology was “transparent and publicly available”. A person close to MSCI said that there was “no potential for a pay-to-play conflict” because investors, not companies, pay for its ratings. Companies that engage with its research team may have higher ratings simply because they care about and are focused on ESG issues.
Others in the industry worry about pressure on the agencies from companies and from the investors who pay for the ratings and who do not like to see big changes or downgrades. This dynamic, they say, has partly shaped the way that ESG ratings are designed. Matt Moscardi, a former executive director at MSCI, remembers being summoned to the offices of Goldman Sachs when he was head of ratings for financial institutions to face criticism about the score the US investment bank had received. “They had a roomful of people and I was effectively on my own.” “They yelled, they screamed, they threatened legal action . . . All the banks would do it,” says Moscardi. Goldman Sachs said “we do not recognise this alleged behaviour as what we would expect of our people at any time.” More than a decade on, an analyst in MSCI’s Mumbai office, who recently left the company and asked for his name to be withheld, says he and colleagues took calls from dozens of investors every month who were unhappy with a change in the rating given to a company in their portfolio. There was also a “fair share of arguments with companies”, who “didn’t care for the ratings”. While these complaints by companies being rated were mostly fielded through other teams, analysts were aware of them.
Proposing a major downgrade or upgrade to a company’s ESG score meant being hauled in front of a committee of superiors, who took the final decision, the analyst says. “If there is a big swing that’s not something that ideally is acceptable. It needs to be justified. It might bring up a question with the methodology,” the analyst adds. A spokesperson for MSCI said its ESG research division “maintains a strong culture of independence and transparency in providing ESG ratings to global investors”. Its ratings are produced using “transparent and publicly available” methodology. To counter the possibility of analysts coming under emotional or legal pressure from companies they rate, the biggest providers have increasingly tried to prevent them from speaking directly to the companies. Basing scores on algorithmic analysis of controversies and risk, and on publicly available information, can minimise the chance of bias creeping in, according to executives in the industry. Steven Bullock, global head of research methodology at S&P Global’s data division, Sustainable1, says the organisation uses a “four eyes” approach for its ESG score, which must be checked by two analysts, before a further “assurance check” by their superiors before any big swing in ratings is approved.
Retail risk – Ambiguity or distortions in how ratings are built matter because ratings are increasingly used by unseasoned retail investors, not just the asset management behemoths who operate their own sophisticated credit and sustainability risk models. Since 2022, EU rules have required financial advisers and intermediaries in the EU to ask retail investors about their sustainability preferences and to offer suitable products. Eric Pederson, head of responsible investments at Copenhagen-based Nordea Asset Management, has recently raised a number of concerns with the dozen rating providers he buys data from. These include marking one company down for too long because of a historic controversy in Turkey, failing to flag weapons sales to Myanmar by another, or overemphasising a wind turbine company’s reliance on carbon-intensive steel rather than its long-term potential to cut global emissions. Intuitively you think [the rating] tells you something about whether the company is behaving in a way that is good or bad for the environment . . . and rating providers have not done enough to disabuse the public of that impression. An increasingly popular product sold by the top agencies, so-called “temperature ratings”, measure what warming trajectory for the planet the company’s actions align with. These can be “totally misleading”, Pederson says. The small print for most ESG ratings explains that stocks and bonds are rated on their ability to manage risks relative to peers in the industry — not on how they affect the planet. Each provider uses proprietary “weightings” to determine how much importance risks have, varying minutely for subsections of each industry.
At MSCI, the carbon intensity of operations makes up a fifth of the final score for a company that refines oil and gas, but just 12 per cent for one that sells coal. The company says its ratings are “not designed to measure a company’s impact on climate change”. Shai Hill, chief executive of Integrum ESG, a challenger to the bigger ratings agencies, says high rating scores are “reassuring if you’re a pension fund trustee and not very experienced. You look at it like you look at someone’s school grade.” Pederson says clients have sold out of his funds overnight because of changes to the rating a basket of stocks gets from a major provider. “Intuitively you think it tells you something about whether the company is behaving in a way that is commensurate with climate change, or good or bad for the environment,” says Pederson. “The rating providers historically have not done enough to disabuse the public of that impression.”
Transatlantic divide – Given the different pressures they face from regulators, with growing sceptcism in the US about net zero, some companies might be forced to choose which side of the Atlantic they wish to prioritise. Morningstar, which owns the number two in the industry, Sustainalytics, is moving towards being “less front-foot on social issues”, according to a person familiar with the change, in a deliberate pivot largely driven by the US political climate. Some executives fear this could risk upsetting European clients, increasingly required by regulators to focus on risks to society and the planet, rather than to business, the person says. Simon MacMahon, head of ESG research at Sustainalytics, says the growing scrutiny and “increasing politicisation of ESG in some markets . . . has not changed our focus or our commitment to including any type of ESG issue, including social issues, in our analysis of companies.”
MSCI also insists that it is not changing its focus. [The scrutiny and] politicisation of ESG . . . has not changed our commitment to including any type of ESG issue, including social issues, in our analysis of companies.A flurry of reporting requirements being introduced by the EU and the US will widen the pool of available data on everything from pesticide use to carbon emissions, adding complexity to the task of rating agencies. This will also make it harder for regulators, who are more accustomed to monitoring credit rating agencies. “The credit industry generates just one signal,” says Bob Mann, chief operating officer of Sustainalytics up to June. “Within the ESG industry you have a never-ending development of new signals.” The more data points rating agencies have to assess, the more they could be tempted to use proprietary algorithms and machine learning tools to do the crunching. “The economics of the industry will push towards machine use,” Mann adds. This in turn could make it more difficult for regulators and retail investors to make sense of already opaque methodologies. Fearing that ESG is becoming an easy target for attacks, amid the growing political disputes over net zero policies in the US and elsewhere, executives say some providers are setting up a trade association for the first time. By positioning themselves as neutral conduits for information, with no influence over the actual investment decisions around the net zero transition, some in the industry hope to avoid getting tangled up in the climate culture wars. Data providers will increasingly argue in public that “this product does nothing to change the world,” says Stewart at Morningstar. “It is more an expression of your own values and preferences.”
bloomberg.com 13-3-2023 Sweden Bans Non-ESG Funds From $90 Billion Pensions Pot – Program will replace a system that was dragged down by scandal – Sweden expects to select 150 funds in the second quarter – By Love Liman
Sweden is inviting international asset managers to help allocate 1 trillion kronor ($90 billion) of pension savings, but says it won’t accept applications from firms that don’t incorporate ESG into their strategies. The new framework will replace a system tainted by an embezzlement scandal that infuriated Swedish taxpayers and triggered calls for a more robust setup. The upshot is that only investment firms that integrate environmental, social and governance goals into their work need apply, according to the Office
Fund companies can tell the investee companies what to do by voting proxies or electing directors who reflect their views.
Suggesting that politicians stay away from the issue of concentration of voting power is not only a mistake, it is also out of step with our multi-generational public policy of addressing concentrations of economic power. The asset management industry should engage with policymakers to suggest solutions.
unherd.com 3-2-2023 The dark side of ESG: data ‘sweatshops’- The exploitation of those in the developing world is not always lifted by the lofty aims of ESG. – by Lucy Harris
Approaches to environmental, social, and corporate governance — otherwise known as ESG — may be coming under increasing scrutiny, but it remains a boom industry. Ironically, the pursuit of socially conscious finance could lead to an alarming trend of so-called “data sweatshops” springing up across the globe to service the ESG industry itself. This should give pause for thought to those funnelling billions of pounds at the behest of so-called ethical investment.
The demand from companies to be scored for their ESG efforts has led to numerous data companies surfacing to provide ranking services, processing the vast amounts of data on supply chains and carbon footprints to produce companies’ ESG scores. The AI algorithms used by these services to calculate a sustainability rating rely on vast amounts of raw data, which in turn must be inputted manually through a labour-intensive process of “data labelling”. That is, labour which can mean that it ends up taking place in the same poor working conditions that ESG is supposedly addressing.
Data centres have appeared in less economically developed areas of the world, including parts of Africa, the Philippines and Indonesia, with data labellers working in insecure conditions on less than the minimum wage.
euronews.com 30-01-2023 What is greenhushing? How to spot the sophisticated greenwashing tactics being used in 2023 – By Angela Symons
nytimes.com – flipboard – dnyuz.com 19-1-2023 Why Some Executives Wish E.S.G. ‘Just Goes Away’ by Andrew Ross Sorkin, Ravi Mattu, Bernhard Warner, Sarah Kessler, Michael J. de la Merced, Lauren Hirsch, Ephrat Livni
Corporate leaders open up about E.S.G. At a cocktail party this week in Davos, one executive told DealBook something he — and most of the attendees at the World Economic Forum — would most likely never say in public: “I hope E.S.G. just goes away.” The executive, whose company is involved in the carbon industry, clarified that he still believes that it is vital to focus on climate, but that environmental, social and corporate governance — as the business approach is formally known — has become too broad and distracting. He’s just one of many executives who have talked to DealBook about coming to terms with how politically charged E.S.G. has become, and about how to deal with it.
Have executives overpromised on E.S.G.? Fixating on lofty goals, without delivering on actions, has made business leaders vulnerable to a backlash, executives said. As evidence, some point to BlackRock’s Larry Fink, one of the earliest and most vocal proponents of E.S.G., saying he’s trying to “change the narrative” after taking fire from the right, and despite the fact that the asset manager still has investments tied to fossil fuels. The elevated messaging, and the pushback to it, has also obscured what supporters of the movement say are the real financial considerations of E.S.G., like what climate change means for a real estate business.
One finance executive compared the current “Davos era” approach to E.S.G. with other once-popular management philosophies, like the Six Sigma system embraced by the former G.E. boss Jack Welch. While investing with purpose probably won’t go away, the executive at Davos said, this particular flavor of E.S.G. may.
Executives worry there’s an overemphasis on measurement. Debate over which yardsticks to use to measure E.S.G. achievements like carbon-emissions reduction has become a distraction, some said. Worse, it can lead to so-called greenwashing of a business or investment.
Global bosses think the E.S.G. backlash is an American phenomenon. Many of the executives at Davos say the politicization of the approach is largely contained to the U.S., reflecting the country’s deep political polarization. After all, Europe has embraced E.S.G. to a far greater extent: One executive of a publicly traded green biosciences company told DealBook that European investors want to plumb more deeply into his company than their American counterparts and that their questions sometimes double the length of his meetings with them.
The stakes are high. E.S.G. investing is one of the fastest-growing segments in finance. PwC forecasts that asset managers will increase their E.S.G.-related assets under management to more than $34 trillion by 2026 from $18 trillion in 2021 as the investment boom becomes more mainstream. …
theconversation.com/ 4-1-2023 Boys will be boys’: why consumers don’t punish big polluters for greenwashing lies – by Adam Austen Kay
“Stigma is an awful burden for business. But what if – for some companies – stigma is an asset? That’s what I and an international team of researchers set out to investigate in a new paper published in the Journal of Management Studies.
We examined how consumers around the world responded to firms in stigmatised industries like oil and gas that are found “greenwashing”, meaning they claim to do more for the environment than they really do. We anticipated that the market would punish greenwashers, but we thought it would treat firms seen to be “dirty” rather differently. Specifically, we thought the market would either
- punish dirty firms more, as might the judge of a repeat offender in court; or
- punish dirty firms less, as might parents who overlook poor behaviour by their child with outdated excuses like “boys will be boys”.
What we discovered has important implications for greenwashing and important implications more broadly.
What we found: In a study tracking 7,365 companies in 47 countries over 15 years, we found that consumers financially penalised firms for greenwashing – but not if those firms were stigmatised as dirty. In other words, the market imposed a kind of tax on companies for greenwashing, unless they were already regarded as big polluters. In order to find out why stigmatised greenwashers were exempt from this market tax, we conducted a follow-up experiment.
After a pre-study to determine which industries are most regarded as “dirty”, “clean” or “neutral” (the answers were oil and gas, solar and wind power, and stationery and office supplies), we presented 458 consumers with a statement from the corporate citizenship report of a firm in one of these three industries. In the statement,…”…
fnlondon.com 17-11-2022 Ex-BlackRock executive says ESG investment model is broken – Terrence Keeley’s new book hints at a quiet debate within a firm that has embraced sustainable investing – By Angel Au-Yeung
“Terrence Keeley had been at BlackRock for about a decade when he reached a contrarian conclusion: ESG doesn’t work. Keeley spent much of his time at the asset manager…”…
Should business and finance play larger roles in resolving the great social and environmental challenges of our time? Proponents of environmental, social, and governance (ESG) investing say yes. They argue that ESG financial strategies can help reverse runaway carbon emissions and fix income and gender inequalities, among other ills. ESG-integrated investments already encompass more than $120 trillion in financial assets. Are they working as promised? If not, how can they be improved?
In Sustainable, a finance-industry veteran offers an insider’s look at the promises, prospects, and perils of ESG investing. Terrence Keeley argues that many ESG advocates have been overly optimistic about what it can accomplish. Divestment threats are ineffective tools for altering corporate behavior, and verifiably “good” companies do not systematically generate great returns. Most importantly, business and finance cannot cure social ills on their own: regulators, public policies, civil society, and individuals must all play specific, complementary roles to shape the future we want. Keeley provides comprehensive solutions that would promote more inclusive, sustainable growth. In particular, he recommends reallocating capital from some indexed products toward an emerging class of strategies with more verifiable social and environmental benefits. Keeley identifies dozens of alternative “impact investing” strategies that could generate true double bottom lines. He also highlights promising civic organizations with proven methodologies for achieving widely shared benefits at scale.
Proposing practical, actionable, and in many cases profitable solutions to social and environmental problems, Sustainable offers an incisive vision of the roles business and finance can and should play in building a flourishing society.
ft.com 12-11-2022 The banking approach to net zero is just claptrap – by Stuart Kirk
ft.com 28-10-2022 The flood of green finance must be diverted from the west – Gilian Tett
esgtoday.com 19-10-2022 BlackRock Launches Multi-Asset ESG Fund, Designed as a “Core Sustainable Holding” – by Emily Shain
economist.com 1-10-2022 The fundamental contradiction of ESG is being laid bare – Profit-seeking companies have too little incentive to save the planet
ft.com 25-9-2022 Business needs selfish reasons to be green – by Gilllian Tett
economist.com/22-9-2022 The fundamental contradiction of ESG is being laid bare – Profit-seeking companies have too little incentive to save the planet
an profit-seeking companies really help save the planet? The question has long dogged the practice of environmental, social and governance (esg) investing. Judging by the giddy growth in all things esg, you might have thought the answer to it must be Yes. More than $35trn of assets worldwide are said to be monitored using some sort of sustainability lens, an increase of 55% since 2016. Investors, banks and businesses have signed up to a series of alliances, from the gfanz and the gsia to the pri and the iigcc, pledging to bring down their own carbon emissions and those of their portfolios. And bosses of s&p 500 companies now mention esg nine times a quarter in earnings calls, on average, compared with just once, if at all, in 2017…
…One illustration of the tensions in esg is the political firestorm in America around BlackRock, a huge asset manager . Republican attorneys-general in 19 states accuse it of misusing its market power by boycotting fossil-fuel firms. The company rejects the charge. Meanwhile, watchdogs in New York, a Democratic state, complain that BlackRock is not green enough. The controversy could come at a cost to the business: Texas, a Republican state, plans to ban its pension funds from dealing with the firm…
The esg dream was that capital markets would penalise those firms that ignored the looming costs of climate change on their businesses. But in practice the costs are too uncertain and distant to play a big part in firms’ or investors’ financial calculus. Most companies can win the gains of appearing green while avoiding the cost of decarbonising by paying lip-service to green goals. According to Climate Action 100+, a group of investors, more than two-thirds of the world’s 166 biggest greenhouse-gas emitters have promised to reach net zero by 2050 or sooner. But less than a fifth have medium-term targets; a similarly low share have set out quantified decarbonisation strategies. It falls to governments to reconcile the goals of profit maximisation and a safer climate. The best way of doing this is to set a high enough price on carbon, forcing companies to internalise the costs of their dirty activities, so that going green is also good for the bottom line. Mandated standards and disclosures must be brought in more quickly, to help firms assess their exposure to higher carbon prices. Companies can help save the planet—but only if doing so is good for business.
thetimes.co.uk 15-9-2022 City law firms accused of greenwashing – by Jonathan Ames
…”…a group of 150 prominent lawyers — including 17 King’s Counsel — have signed an open letter that calls on commercial law specialists to do more to fight climate change. It also accuses many of the world’s biggest law firms, including four of London’s elite “magic circle”, of “greenwashing” — talking a good game about environmental sustainability while representing the world’s biggest polluters…”…
theguardian.com 16-9-2022 Governments urged to act after oil giants accused of misleading public – Documents suggest Shell and BP staff privately downplayed public commitments on climate crisis – by Alex Lawson
…”…Oil and gas companies including Britain’s Shell and BP were urged to “stop their deception” this week as the US House committee on oversight and reform released documents showing that oil industry executives privately downplayed their public messages on efforts to tackle the climate crisis. …
… “My committee’s investigation leaves no doubt that, in the words of one company official, big oil is ‘gaslighting’ the public. These companies claim they are part of the solution to climate change, but internal documents reveal that they are continuing with business as usual. I call on the big fossil fuel companies to stop their deception and cut their emissions now – before it is too late.”
Jamie Peters, a campaigner at Friends of the Earth, said: “Big oil firms like Shell, Exxon and Chevron can try to gloss over their murky PR image as much as they like, as we’ve seen in the millions of dollars pumped into disingenuous greenwash campaigns by the industry. But though unsurprising, this bombshell disclosure confirms what remains utterly transparent about big oil. That it has every intention to keep on extracting in pursuit of profit, rather than transforming how it operates for the sake of our communities and our planet.
“Millions are already experiencing dangerous climate breakdown in extreme heatwaves and devastating floods, like those in Pakistan, as the world’s biggest polluters continue to shirk their responsibilities. They’ll continue to act only in the interests of their shareholders unless governments intervene.”
The Guardian revealed last month that BP has spent more than £800,000 on social media influence ads in the UK this year that champion the company’s investments in green energy. …”…
wsj.com 7-9-2022 Shareholders Stand Up for Profit and Against ESG at Chevron – Under pressure from asset managers, the company embraced policies that are harmful to investors. -By Vivek Ramaswamy
wsj.com 6/9/2022 ESG Can’t Square With Fiduciary Duty – State attorneys general issue a strong warning to investment managers and retirement fund trustees. By Jed Rubenfeld, William P. Barr
“Nineteen state attorneys general wrote a letter last month to BlackRock CEO Laurence D. Fink. They warned that BlackRock’s environmental, social and governance investment policies appear to involve “rampant violations” of the sole interest rule, a well-established legal principle. The sole interest rule requires investment fiduciaries to act to maximize financial returns, not to promote social or political objectives. …”…
vice.com instagram.com 9-2022 ‘Greenwashing’: Tree-Planting Schemes Are Just Creating Tree Cemeteries – Environmentalists claim councils are wasting public money with failed tree-planting initiatives so they can be “seen to be doing something” about the climate crisis. -By Sophia Smith Galer
bloomberg.com 1-9-2022 The Anti-ESG Crusader Who Wants to Pick a Fight With BlackRock – Vivek Ramaswamy, co-founder of Strive Asset Management, is a vocal critic of the hot Wall Street investing trend that Republicans such as Ron DeSantis say promotes a liberal agenda. – By Silla Brush, Saijel Kishan
cnbc.com 9-2022 Op-ed: ESG is not a new thing – by Javier Saade
…”…ESG is a catchphrase for an old idea: That corporate values are necessary to create long-term shareholder value. Squeezing financial gain and growth out of companies on a quarterly basis often comes at the expense of, not in tandem with, long term value creation. …
… Booz, Allen & Hamilton published an interesting piece almost 20 years ago summarizing a survey of top leaders and corporate behavior … The most cited values were ethical behavior, trust, teamwork, commitment to employees and customers, innovation, social and environmental responsibility, and commitment to diversity
… this 2002 HBR article highlights when corporate values and missions are sometimes hogwash, even harmful, because they are disconnected from reality.
Peter Drucker, sometimes called the “father of management,” many decades ago was advising executives to define the purpose and mission of their businesses as strategic imperatives and value creation pillars. What is our business; what do we want to become; and why — these were the questions he posed to titans of industry.
Contemporaneously, Milton Friedman published his “The Social Responsibility of Business is to Increase Its Profits” essay. Its core thesis is that companies have no public or social responsibility and that their only responsibility is to maximize stockholder wealth.
Drucker and Friedman, outsized influences on us all, seemed to be at odds — but were they? …”…
bitcoinmagazine.com 20-8-2022 ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG) IS A WOLF IN SHEEP’S CLOTHING – ESG seems like a positive way to protect the environment on a surface level, but a deeper examination reveals a more sinister path to totalitarianism. – MACRO JACK
hbr.org/ 1-8-2022 ESG Investing Isn’t Designed to Save the Planet – by Kenneth P. Pucker and Andrew King
It’s long past time we faced a hard truth: despite a historic surge in popularity, ESG (environmental, social, and governance) investing will not tackle our generation’s urgent environmental and social challenges. Consider the battle against climate change: Estimates are that humanity will need to invest an average of $3.5 trillion annually over the next 30 years. Unfortunately, these trillions are not the same trillions that are presently invested in assets managed according to many forms of ESG investing — those are dedicated to assuring returns for shareholders, not delivering positive planetary impact.
The separation of profit and planet is by design. ESG ratings which underlie ESG fund selection are based on “single materiality” — the impact of the changing world on a company’s profits and losses, not the reverse. They also bear no connection to natural boundaries. According to Bloomberg, “[ESG] ratings don’t measure a company’s impact on the Earth and society. In fact, they gauge the opposite: the potential impact of the world on the company and its shareholders.”
Yet it’s hard to blame casual observers for believing that investing in an ESG investment fund is helping to save the planet. Marketing materials of ESG funds often make lofty statements about social or environmental aspirations, but the fine print reveals that the real goal is to assure shareholder profits. For example, a prior statement from State Street’s ESG Investment Statement mentions the need to encourage a “transition to a low-carbon, more sustainable, resource-efficient and circular economy,” but later it defines ESG issues as “events or conditions that, should they occur, could cause a negative impact on the value of an investment.” According to Henry Fernandez, CEO of the leading ESG ratings provider MSCI, ESG doublespeak has confused most individuals, many institutional investors, and even some portfolio managers.
This confusion has proven convenient when marketing some ESG products. For example, when BlackRock launched its U.S. Carbon Readiness Transition fund in April of 2021, the exchange-traded fund raised $1.25 billion in one day — a record. Among other things, the fund promised “broad exposure to large and mid-capitalization U.S. companies tilting toward those that BlackRock believes are better positioned to benefit from the transition to a low carbon economy.” That sounds good, but there is no mention of driving the transition and the fund holdings seem remarkably standard: Exxon, Chevron, and Conoco Phillips are among the fund’s top 100 holdings. According to a recent podcast interview with integrated reporting expert Robert Eccles, “If you read some of [the] prospectuses [of ESG funds] they use the word sustainability a bunch of times, [but] you really don’t have any sense as to what the criteria are that they are picking.”
The problems with ESG investing go well beyond hype. Acknowledging and clarifying all of ESG investing’s shortcomings will help pivot to more productive and urgent pursuits …
hbr.org 7-2022 ESG Reports Aren’t a Replacement for Real Sustainability – by Tensie Whelan
Summary: Many corporate leaders are growing frustrated that their ESG efforts are not being rewarded in capital markets. But that’s because they are focusing on reporting more than on doing sustainability. Can companies embed sustainability and make it a source of competitive advantage? Yes, but only if they make it part of strategy. To do that they should undertake SWOT analyses through a sustainability lens, look specifically for material ESG issues that are resulting in risks and opportunities for the company, and then undertake and track return on sustainable investment, setting benchmarks and tracking financial performance over time.
bloomberg.com/ 7-6-2022 ESG Insiders Demand Course Correction to Fix Industry Woes – Some are calling for creation of market watchdog to root out misselling of so-called sustainable funds. by Saijel Kishan
With ESG being increasingly maligned these days from both the inside and the outside, some of the industry’s early devotees say it’s time for a course correction. Jerome Dodson, the retired founder of one of the world’s largest ESG-focused investing firms, said a dedicated watchdog is needed to help police marketing claims. …
bloomberg.com/ 15-6-2022 Goldman Investigation Tarnishes ESG Halo as Investors Bail – With Goldman becoming the latest firm hit by an ESG probe, the industry’s problems may only just be starting.
ESG has become a punching bag for the far right, for disgruntled corporate executives and even industry insiders. But there’s one group whose growing disapproval might be the ultimate game changer. Retail investors are slowly starting to look under the hood of the $40 trillion environmental, social and governance industry that’s increasingly steering their savings, and many aren’t liking what they see. What’s more, some of the biggest names in finance are facing probes of their ESG businesses, with Goldman Sachs Asset Management and the investment arm of Deutsche Bank AG among the most prominent. …
And ESG returns, which rode out the worst lockdown-induced selloffs, also are starting to sag. By the second week of June, European ESG equity funds had, on average, lost 14%, compared with an 11% decline in the Stoxx Europe 600 index. In the US, they lost 16%, which was only marginally better than the S&P 500. But perhaps more importantly, doubts about how much good ESG actually does risk becoming a more lasting turn-off for regular people. …
Industry insiders readily admit that ESG remains hard to define. “What is an ESG fund? I literally have no idea myself,” said Gemma Woodward, head of responsible investment at Quilter Cheviot, which designs bespoke ESG products for professional and retail clients. Baker ended up ditching ESG altogether and going with a broad index fund. He might be among the few who even bothered to look into ESG in the first place, according to a recent survey by Charles Schwab. It found that 66% of UK retail savers don’t care whether their allocations are sustainable, and instead only want to maximize returns. …
- Read More: The ESG Mirage
- Read More: Political Right Zeroes In on ESG Investors as New US Enemy No. 1
- Read more: ESG Fund Bosses Hit by ‘Reckoning’ as Goldman, DWS in Crosshairs
- Read more: Fund Managers Brace for Correction as Greenwash Rules Go Global
aier.org 16-5-2022 A Musk Inspired Anti-ESG Takeover Wave? by Robert E. Wright
It’s fun to see memes suggesting that Elon Musk should buy Alphabet, Amazon, Coca Cola, Disney, Meta, Netflix, YouTube, and so forth, but of course he cannot afford all that. But we can. By we, I mean value investors. Musk’s purchase of Twitter has validated my critiques (see here, here, here, and here) of ESG-based investment (environment, social, governance), which despite its weak financial record currently constitutes about $2.7 trillion globally. And it has demonstrated the potential power of anti-ESG funds, which I have called Friedman Funds, after Milton.
An anti-ESG Friedman Fund would, firstly, short companies overvalued due to capricious or government-dictated ESG metrics and buy companies undervalued due to said metrics, and, secondly, buy controlling interests in potentially valuable companies that are going broke, or at least earning less than they could, because they went woke, as Musk and his investors recently did.
bloomberg.com 15-5-2022 Fund Managers Jump Into ESG Niche With Potential to Grow 2,000% – Schroders, Aviva and other UK asset managers seek to profit from demand for biodiversity-focused investment products – by Natasha White, Alastair Marsh
…”…As asset managers pile into this relatively new business area, climate activists and academics warn of it turning into a simple PR exercise, a distraction from the urgent task at hand.
…”…This is at best an immaterial distraction, unlikely to have any real impact on biodiversity or nature protection,” said Adrienne Buller, senior research fellow at Common Wealth, a UK-based think tank. “At worst, it contributes to the very real problem of actively creating excuses for regulatory inaction and a lack of public investment on environmental protection and restoration.”
In a report published last year, the World Bank outlined the potentially devastating consequences of inaction from an “unprecedented” decline in biodiversity, with roughly 1 million animal and plant species at risk of extinction. And a recent survey published by Citigroup Inc. found that almost 80% of respondents see an overlap between biodiversity risk and financial risk, and ranked it as a higher priority for environmental, social and governance-minded investors than social issues.
“While dedicated funds could be part of the solution, it’s important that these don’t distract from the urgent need to address the destructive impacts of current business models such as our system of food production,” said Simon Rawson, director of corporate engagement at UK nonprofit ShareAction.
A carbon offset is a sort of token that companies buy to fund projects that reduce or remove CO2, in theory cancelling out their carbon emissions. These projects are often nature-based initiatives such as planting trees and restoring peatland, but they’ve been criticized for being too narrow in focus.
So Schroders is looking for alternatives that are both biodiverse and carbon-sequestering, according to Andy Howard, head of global sustainable investments. …
… Gresham House is seeing profit potential from buying or leasing land with a view to improving its biodiversity and packaging that as a biodiversity net-gain credit. Climate Asset Management is working on something similar, which targets projects across multiple markets.
Outside the UK, many European asset managers already have natural-capital strategies. The investing unit of BNP Paribas SA started a fund last year to invest in companies that it assesses are helping restore ecosystems. A similar offering introduced in late 2020 by Swiss money manager Lombard Odier Group now has about $750 million of assets, according to data compiled by Bloomberg. …
…On the disclosures front, there’s still a lack of data and uniform reporting standards. The Task Force on Nature-related Financial Disclosures, announced almost two years ago, plans to finalize a framework in the second half of 2023 for companies to report and act on biodiversity-related risks. Meantime, fund managers are moving ahead with their own solutions, opening the door to possible greenwashing, said Martin Berg, chief investment officer at Climate Asset Management.
“There are lots of new products being presented that say they have improvements to biodiversity,” he said. “This is obviously challenging because the guidance is missing.”
Some of the products being constructed are ripe for abuse, Jupiter’s Carlisle said. The world of carbon offsets has “lots of questions to be addressed,” she said, referring to credit quality and wider governance issues.
ft.com 17-2-2022 Blockchain’s green revolution alarms climate experts
fastcompany.com 13-4-2022 68% of U.S. execs admit their companies are guilty of greenwashing – And two-thirds of executives globally questioned whether their company’s sustainability efforts were genuine – by Adele Peters
..”…The survey results about greenwashing echo some outside analyses. The NewClimate Institute, a nonprofit, recently assessed 25 large companies with goals to reach net zero emissions, and found that they were exaggerating their progress and on track to reduce their emissions by only 40%, not 100%. (Some of the companies argue that the report’s methodology was flawed.) A new UN panel will also study corporate net zero plans to understand how much is greenwashing, and to issue new recommendations for how to set credible net zero goals. Some regulators are also stepping up enforcement of misleading claims. In the U.K., the number of ads banned for greenwashing tripled in the last year. The European Commission is now considering new regulations that would ban vague environmental claims that can’t be proven, along with other misleading claims. …”…
bloomberg.com 16-3-2022 Greenwashing Is Increasingly Making ESG Moot – Fossil fuel holdings, Russia’s war and revelations about who’s investing there are battering the strategy’s original meaning – With more big so-called ESG funds investing in companies that sell the fossil fuels whose burning is behind global warming, the investment category is fast losing its purpose. By Tim Quinson
theguardian.com 16-2-2022 Oil firms’ climate claims are greenwashing, study concludes Most comprehensive scientific analysis to date finds words are not matched by actions
cnn.com 15-2-2022 Major banks pledging net zero are pouring money into the dirtiest fossil fuel – by Reuters
“Financial institutions channeled more than $1.5 trillion into the coal industry in loans and underwriting from January 2019 to November 2021, even though many have made net-zero pledges, a report by a group of 28 non-government organizations showed.Reducing coal use is a key part of global efforts to slash climate-warming greenhouse gases and bring emissions down to “net zero” by the middle of the century, and governments, firms and financial institutions across the world have pledged to take action.But banks continue to fund 1,032 firms involved in the mining, trading, transportation and utilization of coal, the research showed. Financial institutions channeled more than $1.5 trillion into the coal industry in loans and underwriting from January 2019 to November 2021, even though many have made net-zero pledges, a report by a group of 28 non-government organizations showed.Reducing coal use is a key part of global efforts to slash climate-warming greenhouse gases and bring emissions down to “net zero” by the middle of the century, and governments, firms and financial institutions across the world have pledged to take action.But banks continue to fund 1,032 firms involved in the mining, trading, transportation and utilization of coal, the research showed. Banks like to argue that they want to help their coal clients transition, but the reality is that almost none of these companies are transitioning,” said Katrin Ganswind, head of financial research at German environmental group Urgewald, which led the research. “And they have little incentive to do so as long as bankers continue writing them blank checks..”…
climatechangenews.com 6-2-2022 Science Based Targets initiative accused of providing a ‘platform for greenwashing’ – Nestlé, Ikea and Unilever are among brands the New Climate Institute found did not live up to the 1.5C-compatible label they’d been awarded By Joe Lo
“The Science-Based Targets initiative (SBTi) has been slammed as a “platform for greenwashing”, in a critical analysis published today. The New Climate Institute examined the climate plans of 18 multinational corporations which SBTi had rubber-stamped as compatible with 1.5C or 2C of global warming. “For at least 11 of those we find that their targets are highly contentious, due to subtle technicalities,” the report’s authors said. Nestlé, Ikea and Unilever are among the brands with climate plans SBTi judged to meet the strongest 1.5C standard, but which NCI found to have “very low integrity”…”…
theguardian.com 2-2-2022 Activists accuse drinks firm Innocent of ‘greenwashing’ with ad – Plastics Rebellion complains to advertising watchdog about claims made in British TV advert – byHelena Horton
…”…Matt Palmer of the direct action group Plastics Rebellion said: “Greenwashing is dangerous – in the case of Innocent it’s one thing to hide your ecocidal practices, that’s bad enough, but to go to the next level and pretend you’re ‘fixing up the planet’ is far worse. It means that people will willingly – and unwittingly – opt in to support your project in the belief that they are doing good for the planet.”
Plastics Rebellion pointed out that Innocent was owned by Coca-Cola, which has frequently been accused of creating pollution, and was recently found to be the brand most littered on British beaches. The group also claimed Innocent created 32,000 plastic bottles an hour, and said plastic bottles were responsible for a large amount of marine pollution.
The group also said that by repeating the mantra “reduce, reuse, recycle”, Innocent was guilty of “trivialising the plastic crisis”, adding: “Recycling only happens 9% of the time [and] much plastic waste is still landfilled.” Plastics Rebellion has asked that Innocent be banned from making adverts the group described as “greenwashing” in the future…”…
ESG Reporting, Government, Regulators
esgtoday.com 31-1-2022 California Senate Passes Bill for First Law in US Requiring Companies to Disclose all GHG Emissions – by Mark Segal
oilprice.com 23-1-2022 New ESG Wave Hits Wall With Disinterested Investors
The ESG trend has transformed markets in recent years, but some funds may have become slightly too obsessed with it. – Some of Europe’s biggest ETF providers have changed the indices that some of their products track, a move that is causing resentment among fund selectors. – Meanwhile, the SPDR S&P Oil & Gas Exploration & Production ETF recorded a massive 64.31-percent gain last year. By Irina Slav
wsj.com 17-1-2022 Credit Suisse Shows Flaws of Trying to Quantify ESG Risks – Swiss bank has endured repeated scandals and executive departures, but done well on many scoring systems designed to spot nonfinancial risks – by James Mackintosh
thisismoney.co.uk 16-1-2022 Is now the time to put fossil fuels back in your portfolio? Your investment could even HELP the planet – Oil, gas and mining companies provide some of the market’s highest dividends. However, their environmental impact means they are mired in controversy. Some do both harm and good, for example by mining materials for electric cars. Others are cleaning up their act, and investor funds could assist in this. Debate rages among investors about whether to put money in ‘cancelled’ firms – by Danielle Levy
interestingengineering.com 31-1-22 Shell’s Carbon Capture Plant Creates More Emissions Than It Captures – Surprise, surprise – by Derya Ozdemir
Oil giant Shell’s Quest plant has been designed to capture carbon emissions from oil sands operations and store them underground to reduce carbon emissions. However, according to a recent study by the human rights organization Global Witness, the facility actually emits more greenhouse gas emissions than it captures
irishtimes.com 13-1-2022 Green’ nuclear power or greenwashing? by ÉAMON Ó CIOSÁIN,
“Sir, – The current heave by the nuclear lobby and certain member states to have nuclear power approved as somehow environmentally positive by the EU is an audacious piece of greenwashing. In terms of moving toward a new energy economy, nuclear power cannot be viewed as transitional given that the timescale from construction to storing of waste stretches to thousands of years. Recent letter writers to your columns have sidestepped this issue, as well as avoiding mention of disasters such as Fukushima (still ongoing) and others.
Much is made of the fact that radioactive fuel is not a fossil fuel whereas large-scale use of fossil-based energy is needed for nuclear generator construction. In addition to nuclear and fossil pollution in this industry, there is the dirty issue of mining uranium in some of the poorest and most unstable countries in the world.
There are question marks over two new nuclear reactor prototypes being promoted in present European plans. The French EPR reactors (only two and still in construction) have been bedevilled by endless cracks and soldering problems. The EPR in Finland is now 12 years beyond its deadline and costs have risen from €3 billion to an estimated €12 billion. Small modular reactors (the other prong of the French strategy being lobbied for in Europe) are in their early days and their cost and operational quality are as yet uncertain.
Wind power is often criticised as being unreliable and requiring backup. So is nuclear power. At the time of writing, the four largest reactors in France (among others) are out of service and coal-fired stations are likely to be used so as to avoid winter power cuts. Across Europe, older generators are being closed down, reducing availability. Reliable? “
bloomberg.com 12-1-2022 Not Everyone Likes ESG – If you are the chief executive officer of a public company, there are various environmental, social and governance things you could do. You could, like, switch your widget factory to use..”… By Matt Levine
erm.com 10-1-2022 ERM named as a leading ESG & Sustainability Consultancy in new independent research
ERM, the world’s largest pure play sustainability consultancy, has been named as a leader in the ESG & Sustainability Consultancy industry, according to new independent research.
The Verdantix Green Quadrant: ESG & Sustainability Consulting 2022 report is based on a comprehensive assessment of ERM’s services, extensive briefings with ERM experts and in-depth customer interviews conducted by Verdantix analysts. It benchmarks leading industry firms according to 15 different capability criteria.
economist.com 8-1-2020 The EU’s green-investing “taxonomy” could go global – But will it steer capital towards deserving projects?
economist.com 8-1-2022 The meaning of green- The EU’s green rules will do too little to tackle climate change – Relying on investors to save the planet using a “taxonomy” has limits
greenbiz.com 5-1-2022 The year ahead in ESG: More scrutiny, better boards and the growth of greenwash – By Grant Harrison
The world of ESG and sustainable finance saw some truly eye-popping numbers last year, such as $130 trillion via the Global Financial Alliance for Net Zero (GFANZ) committed to using science-based guidelines to achieve net-zero emissions by 2050, or the $35 trillion invested in some form of ESG strategy by mid year.
Big numbers should foster commensurately big changes, right? Well, the Mauna Loa observatory read 420 ppm of carbon dioxide in our atmosphere; the International Energy Agency (IEA), a group not historically known to align with activists, stated that coal development must cease quickly if we’re to meet the goal of net-zero emissions by midcentury. Meanwhile, the world’s largest asset manager continues to hold an exposure of around $1.2 billion in India’s largest coal firm.
As the highly contentious Carmichael mine gets its first shipment of coal ready for export, BlackRock has, as of this writing, not changed its position. This set-up encapsulates a theme I’ll be hyper-focused on in 2022: substantive actions from the ESG ecosystem of institutional investors, ratings agencies, corporate reporters and financial institutions that yield measurable progress in line with their lofty, and commendable, commitments. …”…
cleantechnica.com 31/12/2021 That Inedible Dish Called The EU Taxonomy – Greenwashing Galore – Greenwashing is not a problem for the green transition, it is THE problem. By Luca Bonaccorsi
…”…Environmentalists know all too well the limitations of disclosures. When T&E succeeded in making carmakers publish the vehicle’s emissions on ads, we thought people would naturally choose the ones with lower emissions. Then SUVs came along, and buying a 2-tonne tractor to face the ‘jungle’ in Paris or Milan or Berlin became more important than the quality of the air people were breathing. With sustainable finance, lobbyists didn’t even grant us the right to print the truth on the label, in small print, on the last page. Not even that. The result is that the Taxonomy has gone from being a pioneering and bold attempt to clean up finance, to a dangerous tool for greenwashing – a polite word for fraud. Are there lessons to be learnt for 2022? Two at least. First, greenwashing is not a problem for the green transition, it is THE problem. One that calls for appropriate measures. Second, we cannot expect institutions to address the transition by consulting the very same lobbyists that are fighting against it. And if institutions fail to address greenwashing, it’ll be down to us, civil society, to straighten things up. Are you ready for another year of fights.”
fastcompany.com 1/1/2020 Science, conscious consumers, and next-gen founders will drive ‘ESG’ innovation in 2022 – Members of the Fast Company Impact Council say business and cultural forces will help push environmental, social, and governance leadership.
bloomberg.com 31/12/2021 BlackRock Made ESG the Hottest Ticket on Wall Street – Stampede into sustainable funds got push from model portfolios – main result is ‘giving them more fees,’ says former executive – By Cam Simpson , Saijel Kishan
“Almost two years have passed since Larry Fink, the chief executive officer of BlackRock Inc., declared that a fundamental reshaping of global capitalism was underway and that his firm would help lead it by making it easier to invest in companies with favorable environmental and social practices. Lately, he’s been taking a victory round …”…
“Investors poured more than $120 billion this year into exchange-traded funds marketed as comprising companies with strong environmental, social, and governance (ESG) track records… These funds ostensibly drive capital toward socially and environmentally conscious corporations, and allow their owners—for the most part, pension funds and other large institutional investors—to claim they are reducing their investment in unethical or destructive companies. But BlackRock and the other asset managers that compile the most popular of these funds don’t always agree on what “ESG” really means or how to build a portfolio around it. As a result, many ESG ETFs have a carbon footprint that is scarcely lower than the S&P 500…
…A key problem is that portfolio managers, even of ESG funds, typically assign very little weight to a company’s climate performance, according to a comprehensive analysis (pdf) in August by economists at EDHEC Business School in France…
theguardian.com 16/12/21 Why ethical investors need to look beyond the ‘do no harm v do good’ debate Some responsible investors simply avoid ‘sin’ stocks, others only invest in companies that make a positive impact. But is this binary approach the best way to make the world a better place? by Nick Huber
corpgov.law.harvard.edu 15/12/2021 The Corporate Director’s Guide to ESG by Maria Castañón Moats, Paul DeNicola,
“For many, the term ESG (environmental, social, governance), conjures notions of investors chasing feel-good stories of sustainability, diversity, and ethics. But given the heightened interests from various stakeholders, corporate directors know ESG is much more. Far from being just window dressing, making organizations appear socially responsible to the outside world, there are real risks at play when it comes to ESG issues. And there are even more opportunities to be seized…
…Ratings and rating agencies – What do they do? – Rating agencies gather data about a company’s ESG efforts through direct surveys (which can be time consuming) or through the company’s publicly available disclosures. They then provide ESG scores based on their view of a company’s risk exposure versus their industry peers. Qualitative and quantitative data inform these ratings. Rating agencies also guide investors through the publication of benchmarking data. And some use their ratings to create ESG indices that might be licensed to asset managers and others to create ESG funds and other financial products.
Who are they? – MSCI, Institutional Shareholder Services (ISS), Sustainalytics, and S&P Global are among the most prominent. The methodologies used by these agencies vary and the resulting ratings are not consistently aligned with a particular ESG disclosure framework or set of standards and may not meet the needs of all institutional investors…”…https://corpgov.law.harvard.edu/2021/12/15/the-corporate-directors-guide-to-esg/embed/#?secret=wkSWeu56vX
thetimes.co.uk/ 9/12/2021 ESG: the next mis-selling scandal – Fads come and fads go in business law — remember the hysteria around implementation of the EU’s general data protection rules? The latest involves three letters: ESG. by Jonathan Ames
This is not a fashionable party drug sweeping revitalised nightclubs, but an abbreviation for the term “environment, social and governance”. Anodyne it may seem, but some claim that it presents a danger to law firms’ corporate clients and could be the next mis-selling scandal.
esgtoday.com 9/12/2021 EU Council Clears EU Taxonomy Rules for Climate for Implementation in January 2022 by Mark Segal https://www.esgtoday.com/eu-council-clears-eu-taxonomy-rules-for-climate-for-implementation-in-january-2022/embed/#?secret=D4Op8SrU5M
bloomberg.com/ MSCI, the largest ESG rating company, doesn’t even try to measure the impact of a corporation on the world. It’s all about whether the world might mess with the bottom line. By Cam Simpson, Akshat Rathi, and Saijel Kishan
…”Yesterday’s heterodoxy is today’s Wall Street sales cliché. Investment firms have been capturing trillions of dollars from retail investors, pension funds, and others with promises that the stocks and bonds of big companies can yield tidy returns while also helping to save the planet or make life better for its people. The sale of these investments is now the fastest-growing segment of the global financial-services industry, thanks to marketing built on dire warnings about the climate crisis, wide-scale social unrest, and the pandemic.”
…”…No single company is more critical to Wall Street’s new profit engine than MSCI, which dominates a foundational yet unregulated piece of the business: producing ratings on corporate “environmental, social, and governance” practices. BlackRock and other investment salesmen use these ESG ratings, as they’re called, to justify a “sustainable” label on stock and bond funds. For a significant number of investors, it’s a powerful attraction. Yet there’s virtually no connection between MSCI’s “better world” marketing and its methodology. That’s because the ratings don’t measure a company’s impact on the Earth and society. In fact, they gauge the opposite: the potential impact of the world on the company and its shareholders. MSCI doesn’t dispute this characterization. It defends its methodology as the most financially relevant for the companies it rates. …
The most striking feature of the system is how rarely a company’s record on climate change seems to get in the way of its climb up the ESG ladder—or even to factor at all. McDonald’s Corp., one of the world’s largest beef purchasers, generated more greenhouse gas emissions in 2019 than Portugal or Hungary, because of the company’s supply chain. McDonald’s produced 54 million tons of emissions that year, an increase of about 7% in four years. Yet on April 23, MSCI gave McDonald’s a ratings upgrade, citing the company’s environmental practices. MSCI did this after dropping carbon emissions from any consideration in the calculation of McDonald’s rating. Why? Because MSCI determined that climate change neither poses a risk nor offers “opportunities” to the company’s bottom line. …
…MSCI’s upgrade of McDonald’s didn’t take into account the company’s greenhouse gas emissions. But they’ve increased steadily. Emissions at offices and restaurants (Scope 1 emissions) have fallen, and those facilities are using less and/or cleaner energy (Scope 2 emissions are those produced by the company’s energy providers). However, increases to emissions in the company’s supply chain (Scope 3 emissions) greatly outweigh the savings. MSCI then recalculated McDonald’s environmental score to give it credit for mitigating “risks associated with packaging material and waste” relative to its peers. That included McDonald’s installation of recycling bins at an unspecified number of locations in France and the U.K.—countries where the company faces potential sanctions or regulations if it doesn’t recycle. In this assessment, as in all others, MSCI was looking only at whether environmental issues had the potential to harm the company. Any mitigation of risks to the planet was incidental. McDonald’s declined to comment on its ESG rating from MSCI.
This approach often yields a kind of doublespeak within the pages of a rating report. An upgrade based on a chemical company’s “water stress” score, for example, doesn’t involve measuring the company’s impact on the water supplies of the communities where it makes chemicals. Rather, it measures whether the communities have enough water to sustain their factories. This applies even if MSCI’s analysts find little evidence the company is trying to restrict discharges into local water systems….”…
wsj.com/ 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…”…
reuters.com 23/11/2021 ESG ratings’ big dogs may need to learn new tricks By George Hay
reuters.com 23/11/2021 Transparency of ESG investment ratings faces regulatory scrutiny By Huw Jones
cityam.com 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.”
klimavest.de/ 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.
bloomberg.com 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…
theguardian.com 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…”…
theconversation.com 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…”…
linkedin.com 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.https://gaiageld.com/2021/11/07/cop-out-cop-and-the-elephant-in-the-room/embed/#?secret=fnUxdYKPBx
bloomberg.com 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…”…
institutionalinvestor.com 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. …”…reuters.com 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….”…
financialpost.com 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.”
businessinsider.com 27/10/2021 Wall Street’s new ‘sustainable’ investing fad is a scam by Bernard Sharfman
fortune.com/ 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. …”…
thecrunch.com 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.”…”…
ft.com 16/10/2021 B Sabrier : ESG illusion raises ethical issues
reuters.com 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. “…
thetimes.co.uk 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.
bloomberg.com 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
ft.com 8/2021 The ESG investing industry is dangerous – A BlackRock dissident speaks truth
efinancialcareers.com 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
ft.com 31/7/2021 Big investors demand annual vote on companies’ net zero plans:
thetimes.co.uk 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.”…
theguardian.com 6/2021 Banks pledge to fight climate crisis – but their boards have deep links with fossil fuels – by Emily Holden ,Emily Atkin
economist.com 22/5/2021 A green bubble? We dissect the investment boom Investors of all stripes are getting on board
ecb.europa.eu/press/blog 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.”
dbag.co 4-2021 How is the ESG trend changing private equity? – Investors expect commitment
“An anonymous survey, conducted among the investment managers of approx. 50 medium-sized private equity companies by the German industry magazine FINANCE and Deutsche Beteiligungs AG (FINANCE Mid-market Private Equity Monitor), reveals that opinions on this topic vary widely. Even the supposedly easy question as to how important ESG criteria are for limited partners (LPs) when fundraising yields very different answers. On a scale from 1 (unimportant) to 10 (very important), the average answer of surveyed investment managers was 6.7. However, the individual responses varied widely – ranging from 1 to 10. Nevertheless, a median of 7 suggests that most LPs attach great importance to ESG topics…”…
financialpost.com/ft 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
theguardian.com 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
wbur.com 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.
theguardian.co.uk 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 …”