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Don’t let the happy smiley face of my photos deceive you. I see myself losing my job to this day. Stress on my family. Give up my London home. It’s broken.
The worst thing is that I was thinking about my heretical speech almost three years ago – climate change is not important to my portfolio. That’s because under Donald Trump, the financial sector played one of the most hypocritical apostle acts of all time. It doesn’t seem to believe in sustainability anymore.
The Net-Zero Banking Alliance has lost herd and its fundraising-related emissions targets have been revised. Meanwhile, find a portfolio manager who prays for environmental, social and governance-based investments. They were so busy dropping that they had a firm commitment to selling from a fossil fuel company.
This is a loss of faith in the month of the Net Zero Asset Manager’s initiative “suspends its activities.” The insurance version is also dead. How did they judge me in 2022 when I wrote on these pages that such an initiative was “claptrap.”
If it’s just a matter of pragmatism, I sympathize. The awakened pendulum turned in the opposite direction. Companies have always followed money, especially banks. When I made a big-name, responsible investment, I said that after the post-research investigation, my client was green. Mothers, dads and institutions said, “I wanted savings to be ‘good’. In 2021, sustainable funding inflows reached $645 million worldwide in 2021, according to Morningstar data, including ESG products. It was a quarter of all influx.
Banks also acquired everything from green bonds to research, as well as index providers, consultants, data analytics companies and more. Yes, there was demand. And it’s not now. For example, last year’s sustainable inflow was $360 billion, a godless $360 billion out of the $150 million overall.
But wait. Net Zero Target or ESG has never been sold to us as shareholder-friendly and profit-benefit opportunity. If so, it’s fair enough. Throw them away – the world has changed. No, they were sold from the beginning as essential beliefs. Sustainability was one of the core values of all banks. Save our planet was the goal of the asset manager.
Such a platy was not a tongue on the cheek. They were taken really seriously, just as skeptics like me learned our costs. But was that all a lie? Otherwise, it is pathetic how easily the financial industry has lost religion. If they didn’t believe in sustainability in the first place, we were all taken on a ride. Who will trust a banker or portfolio manager again?
Not to mention potential false sales claims. So, in my view, the financial industry has no choice but to find faith again. It must be immediately reminiscent of the important role it plays in making the world a better place.
I still believe this. So do many others. The problem is that many of the sustainable finance 1.0 are flawed. No need to worry. The key is that bankers are convinced that they are authentic to challenge themselves. And again. Therefore, current repulsion is an opportunity. It is to abandon false practices and improve goodness while preaching the message that finance is the power for good.
Let’s start with the bank. If I were the global head of sustainability, I would remind shareholders that 80% of the world’s energy still comes from fossil fuels. Do you really want the lights to be out? It makes no sense to unconsciously cut funds to coal, oil or gas companies. It would be better to be engaged, support the transition and promote the economic growth needed to invest in renewable energy.
We also point out that half of greenhouse emissions come from just three dozen companies, of which 16 come from state-owned companies. Banks should focus their efforts on where they count, just like governments and regulators. Investors too. However, asset owners and managers must first correct another costly distraction. As I wrote before, they confuse investment with trading.
Buying and selling stocks in the secondary market makes no difference. Equity is permanent capital and every sale requires a buyer. The same goes for the opposite. To influence a company, you must own shares to vote. Therefore, exclusion strategies are evil. They are also immoral because you are forcing someone else to own the stock you excluded. The only “investment” that moves the needle is where actual money is given or withdrawn, and occurs in the primary market, including venture capital, private equity, direct lending. Sustainable Finance 2.0 must start here.
And finally, what about ESG? Despite being blamed for that ending mise, I am a fan. It’s not as an inventory picking approach, but it’s not more legal than any form of aggressive management. It works sometimes, most of them. Rather, ESG serves as a measure of “good” beyond risk and returns. In contrast to the above, regulations are required here. There is no one score, no argument per company. Only then will people know what they are buying.
Certainly, without trust, sustainable finance has no opportunity. It means being realistic, honest and practical. Few trees are hugged, and there are more data and consistent solutions. But the first bankers have to prove to us that they believe it.
stuart.kirk@ft.com
