It began almost as soon as the Russian tanks entered Ukraine: rumblings, in the investment community, that we have more important things to be thinking about now than a company’s ESG (environment, social and governance) credentials.
On 4 March, just over a week after the invasion began, Merryn Somerset Webb, the editor of MoneyWeek, kicked things off, asking in her Financial Times column: “Are defence stocks ESG now?” She wrote: “To invest sustainably for the long term in companies that offer something to society you don’t actually need an ESG fund manager. In fact, you probably don’t want an ESG fund manager.”
Last month Stuart Kirk, head of responsible investing at HSBC Global Asset Management, gave a presentation at the FT’s Moral Money event in which he argued that “central banks are particularly annoying because they haven’t spent enough time worrying about inflation and growth and why it’s going out of control, and [they have] spent way too much time on climate risk”. (He also goaded ESG purists with lines such as “who cares if Miami is six meters under water in a hundred years? Amsterdam’s been six meters underwater for ages and that’s a really nice place”.) Kirk has since been suspended.
Then there are the altogether more aggressive attacks from across the pond. At a speech on 10 May Mike Pence, the vice-president under Donald Trump, called ESG a “radical” agenda, while Peter Thiel, a tech investor and a donor to the Republican Party, called it a “hate factory for naming enemies”. Elon Musk – whose outburst coincided with the release of the latest edition of the S&P 500 ESG index in which his electric car company, Tesla, was notable by its absence – last week called it “a scam” and “the devil incarnate”.
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After years of ESG becoming an increasingly normal part of business – the market is now worth $35.3 trillion globally, about $1 in every $3 managed – these reactions suddenly seem to be acceptable. With Ukraine under attack and our energy supply under threat, there is a sense that the mask has slipped, and companies that purported to be committed to cleaning up their acts have given up the ghost.
Since the invasion of Ukraine, investors have actively reconsidered their decisions to phase out fossil fuels, causing the Dow Jones US oil and gas index to rise 52.8 per cent so far this year. Three weeks ago BlackRock, the world’s biggest asset manager, said it would vote against green activism proposals by fellow shareholders in companies it has invested in because they “may not promote long-term shareholder value” (which presumably came as a surprise to investors, who were told by BlackRock last year that “climate risk is investment risk”). Meanwhile, at the beginning of May, Barclays euphemistically said it would take a “pragmatic” approach to energy projects.
To be fair to Kirk, he’s probably right: central banks definitely weren’t worried enough about inflation. But it’s also arguable that, had investors been more committed to renewables and quicker to ditch oil and gas, governments wouldn’t have been so reliant on fossil fuels – the very commodities that are the primary driver behind present inflation.
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Still, perhaps this is just part of the inevitable hype cycle that affects all new ideas when they become popular. In which case, the right-wing US pundit Glenn Beck has found himself well ahead of the curve. In mid-April he changed his Twitter bio to read: “Against ESG before it was cool”.