Gary Lineker may have hogged the headlines in the early part of this week - but the collapse of one US bank and its UK arm, which may live in infamy, wasn’t far behind.
Silicon Valley Bank’s demise and the scramble to salvage the situation was always going to spur a stream of commentary about what led to its fragility, and always likely to become the centre of political debate.
And so it was - with ESG critics, largely in the US, holding up the bank’s fall as an example of what happens when “woke” leadership and ESG-led action get in the way of conventional capitalism. The Daily Mail chimed in with Go woke, go broke, while Bloomberg covered how the SVB saga exposed ‘“lazy” ESG funds, and the Washington Post wrote at length about why this was a loud and clear example of the investing world being drawn into culture wars.
To the anti-woke lobby, the SVB implosion is surely a welcome bounty of ammunition. It is a fairly easy picture to paint: the board was fixated with ESG goals - or more accurately, E and S goals to the exclusion of G goals - and that meant the business was living in financial fantasyland, and it has sent shockwaves through many others as a result. In short, commercially-speaking at least, the claim is that wokeness equals weakness.
Start-up news site Sifted’s founder John Thornhill wrote in the Financial Times that the story showed ‘there are few libertarians in a financial foxhole’. He offered that it “also shines an unforgiving spotlight on the hypocrisy of some of the biggest venture capital players on both sides of the Atlantic, who privately urged their portfolio companies to pull their money from the bank and then later publicly called for government support,” a point other observers have been at pains to make too.
The question here, surely, and putting all politics aside, is whether the bank’s fall was caused by bad governance or ESG.
That might seem a daft distinction to make, given the G of ESG is all about corporate governance. So more clearly, the question is whether the collapse was down to weak or misaligned governance across the board that saw things spiral, or - as is the view of detractors - an unrealistic and idealistic focus on ESG ambitions that were ultimately inappropriate for a bank of its stature and caused it to corrode.
The other question is what’s really new here? And the answer is probably not that much, despite the scale of the event and the number of people and businesses affected. This is not the ‘it’s all ESG’s fault’ failure that the anti-ESG lobby is trumpeting, but looks to be a case of ineffective governance prompting an undoing.
Yes, that probably should have been called out and acted upon more effectively as part of the company’s ESG strategy. Its most recent ESG report talked about board oversight of governance, outlined several charters and pointed to the usual characteristics, but was relatively light on detail, or action.
Perhaps the last word on this should reflect the Greenbiz ‘Don’t talk about ESG’ story earlier this week, unrelated, that outlined why companies may be best to steer clear of the overt acronym at the moment. “Conservatives have gone into beast mode to tar everything ESG with a single brush”, it said. Putting a little daylight between sustained corporate action on material ESG issues, and the drive to make ESG investing and reporting more robust, may be a shrewd move.
The ESG News Review is written by Steve Earl, a Partner at BOLDT.
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