62. ESG investing: A force for good or blah blah blah? - nov21

As COP26 comes to a close, there has been a flurry of commitments to invest trillions of dollars in green technologies and carbon neutral projects. That is the core of ESG investing (or is it?).
ESG investing has grown exponentially since the famous 2015 Marc Carney’s speech "Breaking the Tragedy of the Horizon" and the 2020 Blackrock letter “Because capital markets pull future risk forward, we will see changes in capital allocation more quickly than we see changes to the climate itself”. Numbers are dizzying. ESG investment has almost trebled over the last five years, reaching $50 trillion in assets in 2021.

At the same time, ESG investing seems to be victim of its own success with inflated claims not met by facts. With more than 600 ratings and 5,000 metrics, ESG has become a maze where investors are drowned in an “alphabet soup” of standards while some financial institutions seem to be more focused on fees than purpose. At last, the regulators - whether the EU Commission or the SEC - are starting to intervene to create standards.

To try to understand the dynamics of ESG investing, its challenges, effectiveness, and possible solutions, we have invited Catherine Howarth, CEO of Shareaction. Shareaction is a NGO working to assess the quality of sustainability practice of the world’s largest institutional investors, and to hold investors accountable on the gap between their sustainability claims and actions.
We exchange candidly with Catherine on ESG ratings, shareholders’ activism, the divestment movement, and the role of regulators.


References

Shareaction: https://shareaction.org/

Quilter on ESG: https://media.quilter.com/search/greenwashing-tops-investors-concerns-around-esg-products-new-research-finds/
Talking Responsibly: https://podcasts.apple.com/gb/podcast/talking-responsibly/id1547007524
DivestInvest: https://www.divestinvest.org/
“Doing Good or Feeling Good” by EDHEC: https://energycentral.com/c/ec/doing-good-or-feeling-good-detecting-greenwashing-climate-investing-edhec
EU Taxonomy: https://ec.europa.eu/info/business-economy-euro/banking-and-finance/sustainable-finance/eu-taxonomy-sustainable-activities_en
DWS (Deutsche Bank) rocked by $1trillion SEC greenwashing probe: https://www.internationalinvestment.net/news/4036306/dws-rocked-usd1trillion-sec-greenwashing-probe-reports
Bank of International Settlements: “A taxonomy of taxonomies” https://www.bis.org/publ/bppdf/bispap118.pdf