In This Changes Everything, Naomi Klein outlines a vision for saving the planet in which investors have no role to play. Capitalism, the argument goes, is at odds with the climate. Yet, with the rise of ESG investing, is there now a middle way between finance and the climate?
In light of such developments, Blackrock’s CEO Larry Fink this week unveiled major changes in an effort to continue to position the asset manager as a leader in sustainable investing. The changes were announced in a letter sent to clients on Tuesday and released concurrently with his annual letter to chief executives, in which he warned climate change represented a risk to markets unlike any previous crisis.
Response? Vocal critics, including Christopher Hohn of hedge fund TCI, said last month that “major asset managers such as BlackRock have been shown to be full of greenwash”. Indeed, Wall Street managers have lagged behind other financial hubs in tackling climate change. Japan’s Government Pension Investment Fund has in many ways set the pace, vowing not to award new mandates to managers without ESG credentials. Placing environmental, social and governance indicators on par with traditional measures such as liquidity and credit risk does not put BlackRock ahead of the curve.
Impact? As such, we must question the extent to which ESG is a viable solution to the climate emergency. Clearly, the term poses a communications challenge because the troika are put in the same bracket, yet there is no agreed methodology on ESG nor equal weighting for each one. We can therefore imagine how this term could be abused by companies who appear to be performing well on one of the indicators, but poorly on the rest, yet still be doing well on average. Corporate leaders must carefully define ESG before the term loses its impact and becomes increasingly seen as a self-serving construct.
On this measure, Fink’s emphasis on climate change seems to push towards one strand of ESG. This will certainly appeal to increasingly asset rich millennials. But winning the argument against those sceptical of the role of capital in solving climate change will require a much more sustained effort rather than the grandeur implied by the annual letter. This indeed will change everything.