The audience was stunned. During his presentation at an FT Moral Money event on 19 May 2022, Stuart Kirk, the head of responsible investments at HSBC Asset Management, was adamant: “Climate change is not a financial risk that we need to worry about.” Was he breaking rank or shining a light on general insincerity?
Despite its surge in popularity, many suspect that ESG investing will not address our generation’s urgent 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. That’s an amount presently invested in assets managed according to many forms of ESG criteria. Still, unfortunately, these are funds dedicated to assuring returns for shareholders rather than positive outcomes elsewhere.
The separation of profit and planet is by design. ESG investments are rated on how the operating environment may affect profits, not the reverse. The financial data and media company Bloomberg puts it neatly: “[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.”
Fighting climate change is one thing; measuring and assessing the climate risk to a firm’s profits is another. While ESG investing might be a way to measure risks to corporate cash flows, it is no way to advance planetary sustainability. Asset managers are trained, incentivised, and bound to maximise their client’s returns. Is it naïve and unreasonable to expect them to put public interests ahead of their clients?
Richard Costa, director and head of corporate reporting at Ensemble Studio.
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February 21, 2024