The ESG Review: ESG’s true financial value putting cynics in the shade, Davos hears

It has been Davos week, meaning the great of and the good of business thinking have been gathered on a Swiss mountainside to hear about the biggest issues facing the global economy.

One fact that hit the headlines was the level of financial damage that the political backlash against ESG investing in the US has had, with the revelation that $4 billion had been pulled out of BlackRock, the world’s largest asset manager, as a direct consequence.

That number was put firmly in the shade by the firm’s CEO though, when he announced that it has received an additional $230 billion in investment in ESG funds over the course of last year. That’s right, the net inflows for the biggest asset manager in 2023 from ESG investing were more than 57 times that of the outflows caused by sceptics taking their money elsewhere,

It is a staggering amount of money of course, but also a ringing hard currency endorsement of the faith that financiers have not just in the value that positive corporate change can bring, but in the returns it stands to generate. CEO Larry Fink also pointed to the global shift towards reduction in carbon emissions, particularly in Europe, as a key driver of new business activity.

Expanding on this in Fortune, he went several steps further, outlining on the opening day of the World Economic Forum at Davos how he was under “personal attack” by detractors. The political polarisation over ESG investment, and the pot shots it triggers, may only get uglier.

The Financial Times reported on Republicans in the US of corporate proxy advisers that influence how shareholders vote, with a letter from the legal leaders of three right-leaning states stating: “Your actions may threaten the economic value of our states’ and citizens’ investments and pensions - interests that may not be subordinated to your social and environmental belief, or those of your other clients.”

According to an opinion piece in the Wall Street Journal, the backlash and war of words may eventually be solved by disclosures and transparency - in other words, asset managers having to be crystal clear on why they invest in certain ways, and that their decisions are evidence based, and they therefore can combat political pot-stirring with hard facts.

Yet according to another FT piece, auditors and accountants worry that large companies are far from ready to meet the looming regulatory obligations of climate data disclosures that will fall on their shoulders when several pieces of international legislation come into effect.

“In response, companies are pulling staff from their finance departments into work on emissions data and other ESG metrics that are currently pulled together by specialists in sustainability reporting,” it said.

Meanwhile, Elon Musk - never knowingly under-quoted - is facing legal action on the Tesla front and gave Davos a broad swerve this year, but still bagged at least one headline himself by decrying the S of ESG as standing for “Satanic”.

A lot of stark words then, as the stakes around ESG continue to increase amidst an economic crisis. At least that $230 billion remark from BlackRock will have warmed the hearts of the pro-ESG attendees in Switzerland.

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

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