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The ESG Review: As a storm brews, the first fine lands copy

You have to say, it has been coming,

As criticism and debate over lack of ESG investing and reporting standards has built over the past year, as regulators have begun to stiffen their resolve, and as the war in Ukraine has thrown some rating fundamentals into question, it was always likely that the rumble of thunder on the horizon would bring sparks.

This week, we’ve certainly seen many critical articles, and some critical steps, around what ESG intends to achieve, and the weaknesses with the current approach to ‘sustainable’ investing..

This sideswipe in the Financial Times - Forget ESG: Bring on the BS Index - set the tone and pulls no punches.

“For the armies of asset managers, data providers, consultants and advisers that have sprung up in the past 10 years this is an existential threat. Here is our solution: pivot to bullshit,” it cried.

It was anchored, unsurprisingly, on the intentions of former HSBC head of responsible investing Stuart Kirk’s now-infamous speech ‘Why investors need not worry about climate risk’. In short, the FT piece, absolutely ripped the p*ss out of companies it saw as disingenuously or ‘noisily’ committed to ESG goals.

Such sentiments have been building in recent months, exacerbated by the war and the perceived contradiction of defence companies gaining positive ESG traction for social factors. These developments have left ESG, already working for clearer definitions and consistent standards, more exposed.

Bloomberg carried a piece on individual investors beginning to demand that asset managers prove ESG “works”, and ran a scoop on 50 German police officers raiding DB’s investment arm DWS over greenwashing allegations.

Meanwhile, the Wall Street Journal gave op-ed room to Mike Pence to pen a piece about how Republicans could put a stop to ESG political bias, outlining why “The progressive left is using it to advance goals it could never hope to achieve at the ballot box”.

Yet the FT also covered the growing momentum of regulation around ESG investing.

And in the most significant regulatory development for some time, this week the first fine landed for a company accused of greenwashing, with BNY Mellon’s Investment Adviser arm picking up a $1.5 million bill from the Securities and Exchange Commission in the US, “missatements and omissions” in its ESG approach to fund management being the cause.

These will not be the last words on the value, virtues, shortcomings, politics or application of ESG. In fact, Stuart Kirk’s comments, whatever you think of them, have likely surfaced a debate that has been threatening to break out for many months.

For now though, this week’s last words are best left to the FT, which has covered these developments regularly. ‘Many in the industry disagreed with the tone of Kirk’s speech. “Flippant, off-the-cuff remarks don’t do any favours,” said one executive. Another said: “He was maybe trying to be a bit too clever.” But some welcomed Kirk’s willingness to expose groupthink and highlight some of the inconsistencies of environmental, social and governance investing’.

The ESG News Review is written by Steve Earl, a Partner at BOLDT

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