At the end of the month, the 2021 United Nations Climate Change Conference – otherwise known as COP26 – will head to Glasgow, where it will prompt the usual handwringing, limp promises and warnings about the planet heating up.
Climate change is increasingly viewed as the biggest emergency mankind faces. As the United Nations itself said back in February: “Climate change is a ‘crisis multiplier’ that has profound implications for international peace and stability.” It was a message further echoed this week by the World Health Organisation. But where there is crisis, there is also profit. That is why sustainable investing has been the ‘new normal’ this year.
Recently, the IMF published a blog, ‘How Investment Funds Can Drive the Green Transition’, on its website that looked at… well, the title is a giveaway on this one. It does not need further explanation. The authors Fabio Natalucci, Felix Suntheim, and Jérôme Vandenbussche wrote: “The world’s $50 trillion [€43 trillion] investment fund industry, especially funds with a sustainability focus, can play an important role financing the transition to a greener economy and helping to avoid some of the most perilous effects of climate change, according to our recent analysis as part of the IMF’s Global Financial Stability Report.”
The problem, however, is that ‘sustainability’, ‘ESG’ and ‘green’ can still be little more than buzzwords – phrases that get thrown around as a PR exercise. Recently, I wrote on this site about Tariq Fancy, former chief investment officer for sustainable investing at Blackrock and now the founder of the Rumie Initiative. Fancy took to the site Medium, where he wrote a post, ‘The Diary of a Sustainable Investor’, that outlined the emptiness of sustainable investing.
Making an impact
Fancy wrote of the RISE Fund launch: “Leaving aside whether or not the fundraise would be successful and create real impact or not, I wondered to myself: a $2bn fund may be enough to bump Carole Baskin for a keynote spot at the next flashy social innovation event, but is it enough to make a difference if the majority of the global economy, with nearly $6trn in private equity alone and some $360trn of global wealth overall (3,000x and 180,000x times larger, respectively), continue operating business as usual? The RISE fund seemed like an ambitious effort that could help but was ultimately a drop in the bucket against a tidal wave that was going in the opposite direction.”
Sustainable investing right now is probably still too small to make the kind of impact needed. It is too often also little more than a PR exercise – a way for companies to ‘greenwash’ their public image, and a wild west market where labelling and oversight is still being developed. Even if this were not the case and altruism abounded, the problem is that while all this sounds nice, the world could well have left the transition too late. At this point, is mitigation of climate change more realistic than prevention?
And it is not as if we are going to be able to turn this ship around without some pain. Even Vladimir Putin, for whom I have little time – not that he calls me – has gotten in on this. As was reported on Euractiv earlier this week, the Russian leader openly suggested the rush to invest in green products has led somewhat to the current energy crisis.
According to Euractiv, Putin said: “You see what is happening in Europe. There is hysteria and some confusion in the markets. Why? Because no one is taking it seriously.” He reportedly went on: “Some people are speculating on climate change issues, some people are underestimating some things, some are starting to cut back on investments in the extractive industries. There needs to be a smooth transition.”
The problem here is larger than giving Putin the moral high ground, and he may have a point – even if the energy crisis in the EU springs from a somewhat deeper well. If sustainable investment were to be the be-all-and-end-all the IMF purports it to be in managing the energy transition, then there at least needs to be some more accountability.
Firms must not only be investing everything they can into sustainable products, they should be divesting themselves of everything that is not – and doing that quickly. They should also be open and transparent about what a green transition means to them. But the big question is how to align all that with their fiduciary responsibility.
There is sense in the argument that there needs to be a smooth transition – even if there is a sense this may be akin to observing the speed limit with a gunshot victim in the back of the ambulance. There is a sense that world leaders and industry heads have known about this problem for years and done nothing. And there is a sense that the Republicans in the US should pull their heads out of the … ground and frame a green transition as a jobs programme. But there is also the sense that one of the only options left now is to invent time travel, go back a few decades, and persuade everyone to hit pause on their consumption.