Discover more from ESG on a Sunday
Week 33: We get beaten every day. When is it enough?
In this issue: ▸ The Will and Enough ▸ Climate breakdown in China and Italy ▸ Meanwhile in ESG wonderland ▸ In the woods of ESG data
Can a concrete block swim? It’s like asking if our current political and business leaders are able to transform into something at least a bit more sustainable. Concrete blocks sink, and so do we.
The days passing by are punch-drunk. Hanging in the ropes. Waiting for yet another gong-gong, knowing that it will never really end. Getting beaten again and again makes you numb after some time. Today and yesterday and the day before that, our future got beaten. Over and over again, the future gets smashed against the wall of the past. And against the small sparks of future blinking, not shining, in the horizon.
Yet it’s still there. If you stretch your hand you can almost feel the stardust with your fingertips. But our gaze is not turned that way. We have now. We have today. That is what we have. Maybe we have next week, maybe even next month, but we don’t have more than that. Because if we had, things would look different. After all, time is a flat circle.
The Will and Enough
Maybe Nietzsche was right with his Concept of Eternal Recurrence which was based on Schopenhauer’s philosophy. The universe is cyclic space. Arthur Schopenhauer was a German philosopher born in 1788. His most famous work, “The World as Will and Representation,” was published in 1818, and it painted a very bleak picture of the world we live in. Without getting too much into detail, Schopenhauer believed that at the heart of reality existed the Will, a drive inside each and every one of us to live and to satisfy our desires.
The problem is that the Will is never satiated and never placated, making it always on the move and transforming its goal into a moving target. After all, any time we achieve one of our goals, it doesn’t take long for us to get bored and start looking for a new mountain to climb. Now, according to Schopenhauer, all living things bear this same primal force within them yet are never able to satisfy it. Furthermore, our sense of identity is an illusion of the purposeless Will as it tries to give meaning to life.
But today, we need the Will. More than ever, we need the Will that is the voice of millions of people asking for change of a system that simply does not deliver anymore. Enough. A word that has been around for so long. Enough. A word that very soon will be on the streets echoing against the pavements and walls of businesses and government buildings. It will be written on the walls. Enough. We have had enough of deception, lies, flamboyant excuses. We have had enough of compromises. We don’t want our future to get beaten this way. Enough.
“The junk merchant doesn’t sell his product to the consumer, he sells the consumer to his product,” William S Burroughs wrote. “He does not improve and simplify his merchandise. He degrades and simplifies the client.” Think about it.
Climate breakdown in China and Italy
Droughts across Europe, in China, flooding in the US, hundreds of thousands of dead fish stinking in Poland and Germany. “It's been the hardest five days of my life,” said Pawel Wrobel, the mayor of Widuchowa, which is around 400 kilometres (250 miles) from the town where dead fish had first been spotted. “I'd never imagined experiencing such a catastrophe, it is something you see in disaster movies.”
Yes, dear mayor, we are pretty much caught in an ongoing disaster-reality show which is unfolding its full might. And we are just bystanders, pretending it is, for the moment, not related to us, not that important on a personal level.
It would be so much easier if politicians and business leaders just declared: “It is over, we have failed to curb emissions, failed to change our unsustainable economic model. We have failed. And now we are going to sacrifice the poor and vulnerable across the world and all of it, for some time, will look as if it’s all under control. For some time.”
They will of course never say anything like that. Nonetheless, non-transitional physical climate risks have really begun hitting businesses across the world, all the way from Italy to China.
For example, Toyota and Apple supplier Foxconn are among the companies that have suspended plant operations in south-west China as the region is buffeted by hydropower shortages caused by droughts and heatwaves. Sichuan, a province of 84 million people that generates the bulk of its electricity from hydropower, announced it would suspend energy supplies to factories in a number of cities as it braced for a week of temperatures that were forecast to hit highs of more than 40C, according to a government statement.
Toyota said it had suspended operations in the province from Monday until Saturday, in line with the provincial restrictions. Foxconn, the world’s largest contract electronics manufacturer, also confirmed it had closed its Chengdu plant, which manufactures Apple Watches, iPads and MacBooks. The impact on production was “not significant so far”, the company added.
Chinese media reported that electric vehicle battery maker and Tesla supplier CATL also closed its Sichuan plant for the same period. CATL did not immediately respond to a request for comment. Of course they did not respond. What would they say?
The Yangtze River, China’s largest and most important waterway, last week hit its lowest level on record for this time of year, according to the water resources ministry. The ministry said rainfall in the Yangtze basin had been 40 per cent lower than normal since July and that in some areas there had been more than 20 days without significant rainfall.
At the same time, Italy declared a state of emergency for the drought-stricken north. Italy on Monday declared a state of emergency for areas surrounding the river Po, which accounts for roughly a third of the country’s agricultural production and is suffering its worst drought for 70 years. The government decree will allow authorities to cut through red tape and take action immediately if they think it necessary, such as to impose water rationing for homes and businesses.
The Po is Italy’s longest river which runs for more than 650 km (400 miles) through the wealthy north of Italy. However, many stretches of the waterway have run dry and farmers say the flow is so weak that sea water is seeping inland, destroying crops.
Meanwhile in ESG wonderland
Almost a quarter of funds that claim to “promote” sustainability under European regulations don’t deserve an “ESG” label, according to a fresh review by market researcher Morningstar Inc.
The analysis, which looked at funds classified as Article 8 within the EU’s Sustainable Finance Disclosure Regulation, shows that 23% don’t live up to environmental, social or governance investing principles.
The assessment is the latest to raise questions around a key pillar of Europe’s efforts to become of global champion of sustainability. No other jurisdiction has raced ahead with such an ambitious program for transforming the entire asset management industry. But even regulators are starting to warn that the process has left too many opportunities for greenwashing.
The EU’s rulebook for ESG investing, SFDR, was designed to root out asset managers’ inflated sustainability claims. The framework, which was enforced in March last year, requires firms to classify their investment products under one of three categories: Article 6, which only addresses ESG risks; Article 8, which “promotes” ESG characteristics; and Article 9, which sets measurable ESG “objectives.”
Arguably the vaguest of the three categories, Article 8, has become a magnet for fund managers. The Morningstar data reveals that asset managers have reclassified well over 600 funds previously listed as Article 6 to Article 8. A number of Article 9 funds were also downgraded to Article 8, it found. As of June, funds registered as Article 8 held 3.76 trillion EUR, compared with 420 billion EUR allocated to Article 9 funds.
Across the pond, an analysis of 6,000 US funds has concluded there is no such thing as a “good” or “bad” investment in terms of the UN’s Sustainable Development Goals. Instead, the picture is far more complex, according to Util, a sustainable investment data specialist, which is calling for the unbundling of ESG factors in a report that identifies leaders and laggards according to UN SDGs.
Do you buy SDG funds? If so, you should take a look at that report. It provides very good insight.
In the woods of ESG data
Ever wondered how powerful ESG data providers are? Read on, and you will see.
Despite the fact that 80% of the market supports legislative intervention, leading ESG data providers have rejected EU regulation proposals.
ESG rating providers such as MSCI and the London Stock Exchange Group have simply rejected the EU’s proposals to regulate the sector. Responding to an EU consultation, the pair both said there was a need for EU-level intervention but stopped short of saying this should be regulatory, stating that a code of conduct would suffice.
Morningstar, which owns data provider Sustainalytics, said it has “no opinion” on whether EU intervention was necessary but added “principles of good conduct” would be more appropriate than fully-fledged regulation.
S&P Global did not respond to the question about whether it supported regulatory intervention but added that many problems stem from the “lack of standardised non-financial disclosure by companies”.
Responding as to why it did not deem regulatory intervention necessary, MSCI said the nascency of the market and the rapid development of services to support the understanding of ESG risks and opportunities means an “industry-supported code of conduct” was more suitable.
The European Commission launched the consultation in April, requesting feedback on measures including transparency and methodologies adopted by ESG rating providers. The regulation of data providers and the need to provide transparent and consistent ESG data has been a hotly contested topic in recent months. In July, the European Securities and Market Authority (ESMA) said it was seeing “growing momentum” among regulatory bodies to address the issues of ESG rating providers after their shortcomings were again exposed in recent industry feedback.
Overall, the consultation received 168 responses from ESG rating providers and ESG rating users including private companies, central banks, public authorities and non-government organisations from across Europe. The consultation found 81% use ESG ratings mostly or exclusively from large market players, while 60% agreed the current market conditions make it difficult for smaller market players to enter the market.
That’s all for now. Enough is enough.