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I’m surprised it’s taken so long really, but it was only a matter of time before a high priest of ESG at one of the big firms recanted and turned their sermon on the congregation.
The Op-Ed apostasy by former Chief Investment Officer for Sustainable Investing at Blackrock, Tariq Fancy, in USA Today on March 16 was wounding.
Fancy said: “In truth, sustainable investing boils down to little more than marketing hype, PR spin and disingenuous promises from the investment community.”
That’s about as damning as it gets from a luminary, and a brave statement to make.
But is it true?
In my opinion, the answer for the most part is no, and for some part yes.
Let’s start with the yes part.
I can’t talk about Fancy’s individual experience, albeit to say that it chimes with what I’ve known at some of the bigger asset managers over the years. However, I think there have been huge advances recently; a tectonic shift I called it in an article a couple of weeks ago.
Do we face swathes of greenwash in ESG statements, fund compositions and company ‘assessments’?
Again, yes, with caveats. Little of what goes into environmental funds is 100% green (nothing is), and ESG is not a science, as our recent piece on Refinitiv’s top five ESG picks starkly revealed.
But, as I argued in another recent piece, now is the time to hold fund managers to account, and to back the EU Action Plan, which is pushing ‘empiricism’ (at least on the green side so far, with more to come on the social and governance sides) and seeking to put some measurement and rigour against loose ESG claims.
And the yes part of the answer I give above would be as easily levelled at all of us as voters and consumers. Try this on for size, paraphrasing Fancy: “Talking about sustainability at all boils down to little more than marketing hype, PR spin and disingenuous promises regarding the buying decisions we take and the politicians that we choose to represent us.”
Hurts a bit, huh?
However, I say a passionate and determined no for the most part to Fancy’s claims, because the responsible investment ‘movement’ has achieved incredible success in helping to bring the most important societal issues into the focus of investment and corporate strategy. In political parlance, it has shifted The Overton Window.
We too readily forget the past victories of voting and engagement that have led to changes in corporate behaviour and strategy. We downplay the success of sustainability funds that have pushed the envelope of finance. We discount the shift in political/economic thinking that has led to something as significant as the EU Action Plan; driven, it should be remembered, by responsible investors.
We also know that the legal implications of ESG are getting much more serious. How? Because lawyers are all over it: check the following report titled Chasing the Dragon from The Blended Capital Group looking at how law firms are swarming to the subject.
Far be it from me to suggest that lawyers go where the money is…but, they also need radical legal shifts to do that!
The reality is that responsible investment has been ahead of the political and societal curve; even if it's hard-fought success is based on a paradox. It is a square peg in a round hole. It recognises that real, sustainable ‘economic’ change has to come from ‘within’ the finance world as much as ‘without’, but that finance will not – and in many ways cannot – change, without the will of politicians and savers (and I include asset owners in this) to make it so.
I don’t believe that asset managers or finance will (and legally can, or even should) change beyond what the law requires them to, or what risk, commercial interest, and external/internal pressure influences them to do.
But we need to continue working on all the above pressure points.
Why? Because politics today is framed by economics, and for better or worse (worse, of course in our view), much of that economic paradigm is now dictated by market forces: companies in relation to the interests of their shareholders within a primary focus on growth and returns.
The latest iteration of this debate/paradox has lit up social media with discussion around the ousting of Danone CEO, Emmanuel Faber – one of the pioneering corporate sustainability ‘business strategists’ (alongside Unilever’s Paul Polman) through pressure from activist investors that are ironically both PRI signatories…no doubt supported by major shareholders on the company register, also likely PRI signatories…
Quelle farce, n’est-ce pas?
Maybe, but it’s complicated, and rooted in the paradox outlined above.
To change the economic structure, you must address where the power lies, and much of it can be found in short-termist capitalism.
Going back to Fancy, he says in his conclusion to his article: “We’re running out of time and need to accept the truth: To fix our system and curb a growing disaster, we need governments to fix the rules.”
On that, he’s absolutely right.
Politics is the lever, activism the fulcrum.
We advocate for responsible investment because our environment and societies need it, and we expect change.
But it is about as complicated as it gets: painfully difficult to define and deliver in a complex world; even when some of the problems are horribly obvious and in no scientific doubt, as with climate change, biodiversity loss and pollution.
We should not give in to easy cynicism though.
We must remain committed, pragmatic, rational, empirical, and demanding.