Week 32: ESG is stronger than ever

Dear all,?

Many thanks to all of you who responded to the short survey last week!

It’s great to see so much engagement and so many, really many, good proposals for how to further develop this newsletter.

For me, after 2 years of publishing ‘ESG on a Sunday’ every week, and with an audience of over 20,000 subscribers literally all over the world, it’s clear that I want to continue my efforts and further explore the ESG topic in a broader context.

Through the survey I have learned a lot about what matters and what is just a noise. I’ve learned a lot about the need to focus and show examples, not only critical ones, but also positive or constructive ones. But while of course still being true to myself.

Thank you all for your support and for subscribing and sharing ‘ESG on a Sunday’!

I will continue pushing the edges of ESG wherever they will lead.

Today, ‘ESG on a Sunday’ is translated into Spanish, Portuguese and Japanese every week by people who support what this newsletter is trying to achieve. Thank you for that too!?

A pushback, but ESG is here to stay

Now. A well-orchestrated and bully pushback on ESG in the US has made some of the people in the business, and here I refer to financial markets, lean back and look at the sealing thinking “well, it was just matter of time.” It has, for a long time, been ESG all over the place. And that all over the place was merely marketing & sales & fees-driven love, and as we all know that kind of love usually don’t last too long.

But for all the people out there that silently cherish this pushback, there is one thing I would like to say which is also very clear now. ESG has become part of the regulative fabric of the EU and will most likely in various shapes and forms become part of the US regulatory fabric as well. And as such it is here to stay for a very, very long time.

No, ESG is far from complete and it is far from being fully developed. Institutionalising ESG will take time and it will evolve. Greenwashing will be always part of it in the same way mainstream-washing is part of the broader financial industry “dynamics”. Shall we start a debate on passive versus active? Or quant versus fundamental approach? You get the picture.

ESG is a disruptive force. It forces an industry that for over 200 years has completely ignored the issues, material and tangible, that affect the very companies they invest in and do business with, to take responsibility for it. Strange, isn’t it? 10 years ago, there were no pledges, no “we are leaders of ESG” pamphlets, no regulation. All of that has changed.

The financial industry and its toolbox is not operating in a vacuum anymore, and the industry knows it.?

US banks tout fossil fuel credentials

In recent years, Wall Street firms have tried to talk up their commitment to the environment and social justice. Now they are singing a different tune.

Large US banks such as Goldman Sachs and JPMorgan Chase are among a clutch of global financial services firms that have been touting their business relationships with oil and gas companies. They are doing so to placate politicians in Republican-led states who are penalising them for not doing enough to support the fossil fuel industry.

So far, their entreaties have fallen on deaf ears. West Virginia last month banned five financial firms – BlackRock, JPMorgan, Goldman Sachs, Morgan Stanley and Wells Fargo – from banking activities in the state.

Almost 90 global firms have written to Texas to emphasise that they invest in oil and gas companies. Private equity giant Apollo said in a June letter that chief executive Marc Rowan “has publicly stated that Apollo-managed funds will continue to finance fossil fuel companies”. Sumitomo Mitsui, one of Japan’s largest banks, told the state it had financed $208M in US oil and gas projects.

Read more in this piece from Financial Times.

A dinosaur in Florida

Banks will soon face another test in Florida. Last month, Republican Florida governor Ron DeSantis said he would propose legislation next year to “protect [voters] from the ESG movement”, which he accused of “targeting disfavoured individuals and industries to advance a woke ideological agenda”.

DeSantis, a possible 2024 presidential contender, said he wanted to ban administrators at the agency that oversees the state’s pensions funds from using money managers who consider ESG factors. Instead they would be required to “only consider maximising the return on investment on behalf of Florida’s retirees”.

Yes, we know this lingo from before. We’ve heard it in Europe as well a long time ago.

The Economist’s na?ve report on ESG

Yes, I did read The Economist’s special report on ESG. It completely misses the point. Complaining about the acronyms ESG and proposing the rather, for The Economist, na?ve separation of E and to focus only on emissions is simply, as wrote before, na?ve.

The governance of a company and the way the company manages its talent, people and culture, are prerequisites for cutting the emissions. Decisions are made by people, dear Economist. Governance is maybe even more important than ever before, especially now.

On another note related to the “Special Report on ESG” it was interesting, and I did anticipate that, to read that our economic system which we call the market economy or capitalism is perfectly capable, in its current form, to manage the transition to some kind of future – without any other significant systemic change than emissions.

Thrilling. It is all jolly good and fine. Well. Silos. Let’s put everything in silos and it will all be fine.

Not so long ago, The Economist did not have any issues with CO2 emissions for business or finance…?

Here are some views related to this, in defence of ESG:?

The response from Principles for Responsible Investment (PRI)

The response from Responsible Investor

A look at the voting season

Regarding the governance side of it, let’s have a look at the last voting season in US.

The proxy voting season is the time from April to June where many publicly traded companies host their AGMs. This is also the time when shareholders, or their delegated proxy, vote on issues put forth on the company’s ballot.

In the case of mutual funds, when investee companies have their AGMs, the asset manager may vote proxies on behalf of the funds’ unitholders. As a result, proxy voting can be an important aspect to consider when choosing an asset manager. Through proxy voting, asset managers can convey their views to boards and management, especially on governance-related practices.

Recently, we have seen an increasing number of environmental and social-related shareholder proposals, such as requests for enhanced disclosure on workforce diversity practices or climate-related risks and opportunities. For the 2022 proxy voting season, shareholders submitted a record 924 ESG-related proposals to US companies.

Three topics dominated the proposals: Diversity and inclusion, climate change, and executive compensation.

Should be rather interesting for DeSantis, I would say.?

Recommended reading

Here’s an interesting piece from WEF on “Deep metrics for ESG” and why deep metrics and a strong learning culture are needed to drive effective ESG performance.

And here’s a great practical guide from Bloomberg Law on how ESG reporting frameworks work or don’t work – it’s a comparison of ESG reporting frameworks.

And last, but not least for this week, here’s a fantastic insight piece from McKinsey entitled “How to make ESG real”.?

That’s all for this week. I wish all of you a very happy Sunday!

Kind regards,

Sasja