Week 1: Three 'trends' beyond ESG
In this issue: ▸ The steps made by the ESG industry ▸ Three 'trends' beyond ESG ▸ The fall of climate focus ▸ The rise of meta-ESG ▸ The transparency merry-go-round
Oblivion is a choice.
Year 202X. There’s no real meaning in adding a number after 202. It all melts away, repetitive, a slight bitter-sweet taste, fireworks, our primal hope for a better us. The years passing by reflect who we are, time has nothing to do with it. With Us.
There are few fires out there to sit around and talk, learn and dream. There are many flames though, rising briefly in the night, only to suddenly vanish as if they never existed. And a lot of sparks that are drawing attention, but are never really warming anyone. But they look powerful and grand.
The elements. Earth, Water, Air and Fire. Have we forgotten what they mean? To us. Our self-imposed, chosen by us, oblivion gives comfort. Drunken by selfishness, into oblivion. Our shadows are getting shorter and shorter. Our explanations, interpretations, longer and longer. Comfort. Oblivion. We don’t want to know. It is easier that way.
The steps made by the ESG industry
Let’s take a look at the steps made by the ESG industry. An industry of words, abbreviations, promises, guidelines, conferences, interpretations, definitions. Steps, nevertheless. Important in so many ways. The EU (EU taxonomy) took several years to define what is “green” and what is “not green” within the non-existent definition of what is truly sustainable. Steps, built on a theory of “relative compromises” to please everyone and not really change anything. One step forward, two back and three aside.
But it looks good, sounds like progress, and it’s “one step at a time”.
ESG is geopolitics. Climate change is geopolitics. Human rights are geopolitics. All of us who are working with ESG are deeply entrenched in the geopolitical agendas we relate to, take part in and cajole in our everyday work. System fodder. Oblivion.
Nuclear and gas have, as I wrote and predicted in my previous newsletters, obtained the “green” stamp in the EU taxonomy. Why? Well, the big boys in the schoolyard, France and Germany, have shown that they are the ones deciding. They call the shots and have the last word. It was never about climate targets. Never will be. I can almost hear, over the Baltic sea, the laughter from Kremlin. Russian bureaucrats in the Ministry of Energy drinking French wine and eating delicious German sausages. Nuclear and Gas. Could it get any better?
James Bond died in the last film. The killing of myths seems to be popular nowadays.
Three 'trends' beyond ESG
Looking at ESG trends, beyond smoke and mirrors and market-adjusted sales “trends” is a landscape that looks rather… oblivious.
Here are some of the things I see beyond ESG, and some of the real issues associated with those.
(1) The Fall of Climate Focus
Given the current geopolitical landscape, the climate emergency and the consequences related to it will fall more and more behind with regards to both focus and engagement.
The “real” economic and geopolitical issues – rising interest rates, unemployment, reshuffling of world dynamics due to the pandemic – will take the stage faster than any of us expected. Yes, the climate emergency will still be part of the discussion, but merely on the balcony.
This was also the case before, but in the time to come I think the climate emergency will take a back seat and be described for what it is. A secondary concern. The real power struggle and muscle flexing in the sunset of our civilisation is about something else. Globalisation, a blessing and a curse for climate, is taking a big step back. The pandemic has clearly amplified that trend. “Everyone for themselves” when the shit hits the fan. United we stand. Not.
The EU taxonomy failure is yet another example of that. I have not seen the ESG industry take to the streets to “protect our future” when gas and nuclear became “green”. Yes, some have shouted. But in principle all of it can give good returns. Relative it is. Yes, and soon we will have extracts of Human Rights, some of them defined as sustainable and some of them defined as “in transition” and some of them… well, you get the picture.
(2) The Rise of Meta-ESG
Inflows, new funds, crunch for data, models, predictions, trajectories. Still. We are nowhere. Things on the ground are not really happening. The biggest ESG question ever, not addressed. The current economic dogma is not delivering what we need. The dawn of real ESG analysis and the sunset of ESG ratings is here.
The current ESG ratings provide a space for comfortable oblivion and are not supporting the systemic shift we need. So, analysis will be back big time. Since ESG is a geopolitical issue, asset managers and asset owners will have difficulties using “engagement” as an excuse to do as little as possible. Reconning for real results is here. Depth and quality. Regional focus, thematic issue focus. Persistency before PR.
Alternative ESG data will be entering the stage faster than expected. Companies that understand this and adjust will prevail. The rest will twinkle for some time and then quietly disappear in the darkness.
The investment processes will need to be turned upside down. What societal challenges are they addressing? What is their purpose? What are the results? Are Human Rights good for the investment industry? Or is the “cost” associated with companies respecting them just hampering returns? Well.
(3) The Transparency Merry-go-round
Transparency is probably the most relative thing in the ESG “industry”. It all depends on who you ask, how you ask and what you ask about. You get different answers. The shovel is never just a shovel in the ESG space. “Our investments in companies operating in some of the most totalitarian places and most polluted and oppressing industries around the planet are supported by our firm commitment to engage and influence change.” And?
Those kind of sentences are followed by intricate and rather dull streams of words that most of the time do not make any sense at all.
Today, the sustainability and ESG branded funds do not disclose the results/ improvements of the underlying criteria applied for the selection of the companies these funds invest in. That will change. A lot. Asset managers and asset owners that focus on being truly transparent about challenges and results will lead the way forward. The more mature average Joe becomes in this space, and the more obvious it becomes just how important investments are in the transition to a more sustainable future, the higher the cost for not really doing what you are selling.
Guest contributors on ‘ESG on a Sunday’!
Over the next couple of weeks I will invite external contributors to ‘ESG on a Sunday’.
The platform has been growing substantially over time and there are many constructive voices that need to be heard!
The contributors will include everything from the art world to millionaires for humanity. Stay tuned.