Week 35: Humanity has a story to tell

In this issue: ▸ Will this newsletter be positive? ▸ Shared stories, shared experiences ▸ All the things we could achieve together ▸ Can you trust the ESG industry? ▸ And much more...

Dear all,

This week we once again dive into the split realities of the world we live in. Split and shattered, yet so real and vibrant.

Yes, we must never forget beauty of this world, never doubt human kindness, despite all the challenges. 

Will this newsletter be positive?

I have been longing to write a positive, encouraging newsletter, full of optimism and confidence. A letter to inspire and give not only hope, but also evidence that things are moving in more positive direction.

Week after week, I walk through the landscapes of words on my screen, looking, reading, talking to people. From time to time even talking to myself as if I try to convince myself that next week, next month, next year will be better, more action oriented. After all we don’t have a choice, although it seems we do.

Most of the energy I get when I find myself below surface, in the dark corners of despair, comes from the people I talk to and meet. Interactions and exchanges of views, thoughts, fears and hope is a beautiful everyday journey. It gives strength and energy, inspires and motivates. We all need that, and we could do with more of it.

Last week I touched upon the silent revolution rolling over realities and moving things. Across the world simple human interactions where things are discussed, shared and debated, where insights are confirmed and new questions raised, that’s where this is happening and that is where the power of this silent revolutions lies. Not in big conferences, rallies, boardrooms or social media.

Shared stories, shared experiences

Humanity has a story to tell, and we are telling that story to each other every day in a zillion languages, in a zillion ways. A story about who we are, but also a story about where we are going and what we can become.

That story is repeating itself generation after generation, and we fine-tune it, evolve new chapters, simplify plots and reframe dramas. And we live. As many before and many after us. A perpetual movement forward, circular in its core, given our limited time on this planet.

The things we tell each other, the narratives and the stories, really matter. They matter a lot. They frame our realities and our ability to move mountains.

We need shared experiences in order to connect, emotionally, to what is going on.

However, it is hard to see how a Wall Street banker and a farmer in India can have shared experiences. We need to change this. 

All the things we could achieve together

I have written about the systemic issues related to our economic system, the system we operate. A system that is based on the instruction we have developed, and based on the incentives we have agreed we would like to have.

We – the part of the world that is privileged enough to have an identity beyond getting food for the day – need to start moving from hard-edged narratives on how it is to what it could be. Yes, we know this system is not serving the changing demands of our realities, and we know it is not just, balanced nor sustainable.  

Our ability to construct new things lies in our capacity to imagine, yes, imagine what could be. Yes, we are able to reach the climate targets set in Paris in 2015. Of course we are. We are able to shift the existing business world to be far more sustainable and accountable than it is today. Yes, we can do that too. We are able to do most of the things, together.

The narrative about the transition to a sustainable future is full of power-boosting, alfa, conflicts. It’s full of “they are not doing their part” and “if we do it and they don’t” and “we are giving up our power”.

Our collective conscience is still defined by national, regional, tribal borders.

To really move things, we need to focus on human capital

As in this big picture, so for the ESG world.

Most of the genuine changes and great moves come in simple people-driven interactions, conversations where ideas and options are discussed. Discussing ESG analysis insights with company representatives or other stakeholders, sharing some views on sectors, understanding what drives people that do CSR on the other side.

It is in those moments when you feel that connection, that things are happening.

We all want the same things. We want companies to evolve, grow, meet their targets. And people in corporations want the same thing. But the way we get there is not always easy. It is full of personal and professional compromises, sometimes sacrifices. It’s when things land on the people involved in the processes. Land, like a leaf or like a feeling.

The transition to a sustainable future lacks focus on people, on the human capital of this planet and its ability to move things. In this process we need to be brave and transparent on where we are, what we lack, our hypocrisy and fears. But also our love, our kindness, and our togetherness.  

Can you trust the ESG industry?

The ESG industry – if that’s what we call it – is not honest to its clients. It’s not treating neither itself nor its clients with respect and dignity.

Why? Well, we are selling things to clients that do not hold water. And even worse, we are destroying the credibility of an investment approach that in fact has potential to make things better.

As reported this week, regulators are intensifying their scrutiny of ESG as greenwashing has exploded recently. The pressure is now increasing on fund managers to show they’re being truthful with customers about what they’re selling.

This annoys me. The people who buy ESG funds have expectations that we are not fulfilling. Are asset management firms deliberately misleading clients to take advantage of a massive trend within the market? You would hope the answer is ‘no’, but asset managers are opportunistic beasts and tend to swim to where they smell blood. 

If you have been living under a rock over the past week, you may have missed the hot water DWS has found itself in with the German asset manager forced to deny claims made by former group sustainability officer Desiree Fixler that it painted a rosier-than-reality picture about its ESG credentials.

The claims made by Fixler led the Securities and Exchange Commission (SEC) and German regulator BaFin to launch probes into the greenwashing claims made by the former employee, who was sacked in March.

As a result, DWS’s shares fell 13.5% last Wednesday leading the firm to issue a statement firmly denying claims it misrepresented its ESG credentials to clients.

A DWS spokesperson said in a statement: “We firmly reject the allegations being made by a former employee. DWS will continue to remain a steadfast proponent of ESG investing as part of its fiduciary role on behalf of its clients.”

In an interview with the Wall Street Journal earlier this month, Fixler said she first raised concerns in November 2020 to the DWS management board claiming the ESG risk management system used by the firm was highly flawed. Furthermore, she said the German asset manager made misleading statements in the firm’s 2020 annual report.

More on the DWS story here.

People still don’t get ESG investing

Last week there was an interesting piece showing just how little interest people in banks have in the investment solutions of the future. A Greenpeace mystery shopper’s test at 19 Swiss banks on climate-friendly investments concluded that the quality of advice was poor and the recommended products were only marginally more climate-friendly than conventional ones. In the test, 33 Greenpeace members pretended to be customers interested in investments compatible with the Paris Agreement on climate change.

The mystery shoppers’ held a total of 43 discussions with advisors from the banks tested. They discussed investments of 5,000, 10,000 or 50,000 Swiss francs ($54,641) for ten years. 

The study said that the test clearly demonstrated that investing in a manner compatible with the Paris Agreement is currently almost impossible. Financial institutions are currently contributing barely anything to making the real economy climate-friendly with their so-called sustainable capital investments, even though the Paris Agreement has long called for all financial flows to be climate-friendly. 

This study’s conclusion is not new in itself. In a recent study, Greenpeace also found that sustainable investments were no more successful in directing significantly more capital into a sustainable economy than conventional funds.

Simple answer to this is following: When you do ESG investments for real, you need to have a 5-10 year investments horizon. When someone sells you anything under banner of ESG. Forget about it.

I provided some recommendations on what to ask to evaluate in one of my previous newsletters. The only credible ESG products on the market today are to be found among the very few Article 9 funds.

Imagine if U.S. decided to go green for real

Now we move to what is possible, or maybe what is impossible. Imagine that the biggest economy in the world decide to go green for real. Imagine again, yes, it’s possible, there’s so much talent and so much resources in that place. And it also has that “we going to put a man on the moon” feeling.

Yes, U.S. is often like a hormonal teenager who wants it all and is showing its register of skills to impress the audience. Now, I wish more people in the U.S. could imagine green for real things since the current state of affairs does not look very promising.

The Biden administration announced plans on Tuesday to open millions of acres for oil and gas exploration as the White House sought to comply with a court order requiring it to resume lease auctions.

The move, which includes some 80 million acres of water in the Gulf of Mexico along with potentially hundreds of thousands more onshore, represents a setback for Biden’s plans to fight climate change, which included a campaign vow to end new federal oil and gas leasing.

It is strange since the physical impact from the climate emergency on the U.S. population is rather significant.

Sixty years of climate change warnings

In the spirit of shared experiences we need to acknowledge this. In August 1974, the CIA produced a study on “climatological research as it pertains to intelligence problems”. The diagnosis was dramatic. It warned of the emergence of a new era of weird weather, leading to political unrest and mass migration (which, in turn, would cause more unrest).

The new era the agency imagined wasn’t necessarily one of hotter temperatures; the CIA had heard from scientists warning of global cooling as well as warming. But the direction in which the thermometer was travelling wasn’t their immediate concern; it was the political impact. They knew that the so-called “little ice age”, a series of cold snaps between, roughly, 1350 and 1850, had brought not only drought and famine, but also war – and so could these new climatic changes.

“The climate change began in 1960,” the report’s first page informs us, “but no one, including the climatologists, recognized it.” Crop failures in the Soviet Union and India in the early 1960s had been attributed to standard unlucky weather. The US shipped grain to India and the Soviets killed off livestock to eat, “and premier Nikita Khrushchev was quietly deposed”.

But, the report argued, the world ignored this warning, as the global population continued to grow and states made massive investments in energy, technology and medicine. Although initially prepared as a classified working paper, the report ended up in the New York Times a few years later. By this point, February 1977, the problem of burning fossil fuels was seen more through the lens of the domestic oil crisis rather than overseas famine. The climate crisis might still feel remote, the New York Times mused, but as Americans feel the difficulties of unusual weather combined with shortages of oil, perhaps this might unlock some change?

The paper reported that both energy and climate experts shared the hope “that the current crisis is severe enough and close enough to home to encourage the interest and planning required to deal with these long-range issues before the problems get too much worse”.

And yet, if anything, debate about climate change in the last third of the 20th century would be characterized as much by delay as concern, not least because of something the political analysts at the CIA seem to have missed: the fightback from the fossil fuel industries.

Read more in this excellent long read from Guardian.

That would be all for this week.

Best regards,
Sasja