RUTH SUNDERLAND: How green is your money?
How green is your money? As the ESG industry matures, savers need clarity and protection from the greenwashers, says RUTH SUNDERLAND
- ESG investing has become a multi-trillion pound fad
- Most of us would rather not invest in companies that harm the world
- But there are no standard ESG kitemarks
ESG investing – for the uninitiated, putting your money in line with environmental, social and governance principles – has become a multi-trillion pound fad.
The standard bearers are Wall Street billionaire titans like Larry Fink, the boss of BlackRock, the world’s largest fund manager. It is sometimes forgotten that the king was a pioneer in the field.
Forty years ago, long before it was fashionable, His Majesty became the founder and patron of Business in the Community (BITC), a charitable foundation dedicated to empowering businesses to help build a fairer, greener world.
BITC is still active today and marks its coronation by urging bosses to encourage their staff to volunteer.
When the then Prince Charles first took up the cause of responsible business conduct, it was seen as a well-intentioned, if rather daring, sideline. Four decades later, ESG has grown into a huge, fast-growing – and controversial – industry in its own right, at the heart of the city and Wall Street.
Flashpoint: In the US, some Republicans are leading a backlash against ESG investing and so-called ‘awake capitalism’
In the US, it has become a focal point in the culture wars. Some Republicans are opposed to ESG investing and so-called “wake capitalism,” particularly in oil states like Texas.
The politicization of ESG has even brought in Mickey Mouse. Entertainment giant Disney, which will present its results this week, has been embroiled in a bitter dispute with Ron DeSantis, Florida’s governor and a possible White House contender.
De Santis took on Disney after his bosses attacked legislation to ban schools from teaching young children about sexual orientation and gender identity — known as the “Don’t Say Gay” law to his detractors.
Some states are blacklisting companies seen as anti-fossil fuel for running their pension funds. As the largest player in the ESG market, this has put BlackRock and Larry Fink in the line of fire.
The irony of an arch-capitalist like Fink being pilloried, not for being too rich, but too green, is exquisite. Not least because BlackRock still invests in fossil fuels.
The fact that the Republicans, the free market party, is trying to strip states of the freedom to invest along ESG lines is also rather odd.
So far, Fink and co. are winning. BlackRock lost about $4 billion in assets under management as a result of the backlash. But that barely made a dent in the $230 billion the company raked in from U.S. customers last year.
Green investment opportunities abound in the UK, Europe and the US, where President Biden’s Inflation Reduction Act is pouring billions into eco-friendly projects. So Wall Street is doing what it does best: following the money.
Which brings us to another criticism of ESG: that it is little more than a cynical marketing exercise that allows investment firms to extort higher fees from gullible investors.
According to this reading, many ESG investments are virtue signals at best, doing little to help the planet’s problems. Worse, it can do damage by creating the illusion that private sector investors can solve problems that only governments can solve.
These questions get to the heart of what businesses are for: pure profit or a deeper purpose? Most of us would rather not invest in companies that harm the world. But there are no standard ESG kitemarks. Ratings typically assess the risk ESG poses to a company’s bottom line and reputation, not the threat the company poses to the planet.
Business, as the king acknowledged, can be a powerful force for good. But as the ESG industry matures, savers need clarity and protection from the greenwashers.