Week 19: ‘ESG on a Sunday’ turns 1 ??

Dear all,

I hope everyone is well and ready for this edition of ‘ESG on a Sunday’!

One year of ‘ESG on a Sunday’

This week is a bit special: It’s now been one year since I started this weekly newsletter, covering ESG-related topics and stories across different parts of the world.

The idea for the newsletter came in the age of exponential interest and focus on ESG investing, after the concept had been dwelling on the outskirts of the investment world for years.

The idea was (and still is) to focus on the interconnections between the different ESG topics and their impact (or lack thereof) on the world. To give way to different perspectives – sometimes meta-level, sometimes detail-level – on a growing conceptual view of what investments could be, not only what they are.

Overall, ‘ESG on a Sunday’ is an attempt to share insights and encourage discussion related to ESG.

Thank you

When I started this, I did not expect it to become particularly popular. But it must have hit nerve with people, because it grew fairly quickly right from the start – and it has continued with a steady growth ever since.

Today, there’s almost 10,000 subscribers (across Substack and LinkedIn Newsletter, the two places where I publish simultaneously). Thank you for being one of them!

I’m very grateful for the trust and loyalty from the subscribers. It’s incredible that so many are reading, and I’m also very thankful for the many tips I get on what to cover and what I can improve. Furthermore, I’m of course happy to see and hear that many are sharing ‘ESG on a Sunday’ with friends and colleagues.

In my daily job, it’s my privilege to work with investments and sit in the midst of the ESG information flow. I will continue to share and add perspectives on ESG to shed light on what it can be, not only what it is. 

Unbelievably, the financial sector is forced to change

Looking back at the monumental change around ESG, you can ask yourself “what were the tipping points injecting this change which will dominate the investment narrative for years to come?”

I think we can say that we’ve witnessed a metamorphosis of a sector that obeys to one God and one God only. A sector that 5 years ago laughed at the notion of climate as an externality that has to be priced into investments. A sector that regarded human rights as something politicians and hippies were welcome to spend time on as long as it did not affect returns. A sector that reiterated shareholder primacy over any other interests.

When I write sector, I mean people. People are the centre of gravity in all industries, and yes, even in the financial industry. It all starts and ends with us. We build systems, we support them, we reshape them, evolve and destroy them. We as a group, with our collective knowledge and capacity to transfer and execute insights into tangible actions, we change the world for better or for worse. Together. It is us, and this is much more profound than most of us can imagine.

How did this giant shift towards ESG happen?

Suddenly, millions of influential, wealthy and beyond imagination privileged people in the financial and corporate sectors around the world realised that “Oh, this is no good anymore. We need to deploy ‘non-financial’ metrics to understand the value of companies we invest in and run, from financial point-of-view.”

Just like that? Well, maybe not. But I think one of the most relevant answers to how this has happened does not come from sudden and enormous pressure from clients (they usually don’t even know what they are buying on ESG since they lack information) or from a prophetic moment in the morning-mirror for millions of people in the financial and corporate sector asking themselves how they can save the world.

If you try to track down some of the key drivers you can see the traces going back to 2008 when people working in the financial sector and their decisions driven by the only God (money) shook the entire world – and billions of people around the world paid a price, some with their life.

Politicians reacted too late and too lame, and most of the losses were paid for collectively, i.e. tax money. For too long, self-regulation and voluntary, business driven responsibility was championed as most efficient symbiosis for the benefit of all, or very few.

After 2008, politicians might have learned the lesson that self-regulation and voluntary responsibility by the financial and corporate sectors means different things to different actors.

In the climate negotiations in Copenhagen and in Paris (two among the hundreds of conferences on climate change and consequences related to that, that I have participated in over last 20 years) the financial industry was largely absent. It was not there, or just there to observe. Despite its size and influence, despite its power, the financial sector does not have any climate targets discussed and agreed upon on a global level – neither from the COP negotiations, nor via any other transnational agreements.

That’s changing now. It’s the regulation in the EU and by now partly in the US that is the key driver behind ESG growth, both in terms of interest and in terms of assets.

Yes, those grey politicians in the different parts of the world are by all means changing the word of investments by posing rules, sometimes in the need of improvement, yet rules that institutionalise ESG. Not as an add-on, as self-regulated nice-to-have things you can market to clients. But as a law.

This, if anything, is monumental, and in the years to come regulation, nothing else, forced by reality, will completely reshape the social contract between the financial industry and societies at large.

It is both needed and necessary if ESG is meant to make real changes on the ground.

Are ESG investments making a real difference?

Ask yourself a question (I ask myself this question every day): Are we, with our ESG investments today, making any real difference, any real improvement for the people and planet affected by our investments?

By real difference I mean a real tangible difference. Better working conditions. Fewer violations of rights. Lower CO2 emissions. Better management of the resources businesses are dependent on. Are we solving any of the challenges in the global supply chains that support our unsustainable lifestyle?

I’ve been looking at this site many times the past months, and I’ve been looking closely at each chart. And the feeling is clear: We have a long way to go.

In that sense, the ESG journey has just begun. 

IN OTHER NEWS

Nigeria’s economy is stuck in a rut

The Economist published this story about Nigeria, and it’s a sobering read. Currently, inflation is running at 18%. For food it is 23%, the highest in two decades. More than half of Nigerians are underemployed or unemployed. Before Covid-19 about 80 million of Nigeria’s 200 million people lived on less than the equivalent of $1.90 a day. The pandemic and population growth could see that figure rise to almost 100m by 2023, says the World Bank. “It’s just chaos,” as one Nigerian is quoted saying in the story.

Pandemic stimulus has made the world’s wealthiest wealthier

On Friday, FT published this article on how the super-rich has soaked up Covid cash.

As the virus spread, central banks injected $9tn into economies worldwide, aiming to keep the world economy afloat. Much of that stimulus has gone into financial markets, and from there into the net worth of the ultra-rich. The total wealth of billionaires worldwide rose by $5tn to $13tn in 12 months, the most dramatic surge ever registered on the annual billionaire list compiled by Forbes magazine.

In the article, the author charts the rise of ‘good’ and ‘bad’ billionaires around the world.

Climate emissions are shrinking the stratosphere

Finally, Guardian published this story about how humanity’s enormous emissions of greenhouse gases are shrinking the stratosphere, according to a new study.

The thickness of the atmospheric layer has contracted by 400 metres since the 1980s, and will thin by about another kilometre by 2080 without major cuts in emissions, the researchers found. The changes have the potential to affect satellite operations, the GPS navigation system and radio communications.

That’s it for now. Have a great week!

Best regards,

Sasja