Semantics a distraction as investment culture wars take root

What’s the difference between sustainable investing and ethical investing? And what about impact investing – is that ethical or sustainable, or both? Are they all responsible investing? Or is that more about stewardship, I mean engagement, I mean purpose?

And hang on a minute, what about ESG? Is that still a thing now that some pantomime villains from the asset management world, and the GOP, have declared war on woke capitalism?

Asset managers are shuffling about nervously. Deeply ingrained in the culture of winning institutional mandates is a long-established willingness to do business with pretty much anyone who’s got enough money to put your way. Sales teams with enough resource mirror the spectrum of client types in an effort to be all things to all asset owners.

Should investors police the environment? What is this stakeholder capitalism thing? Are ESG “crackpots” leaving juicy returns on the table for hedge fund manager Crispin Odey and an emergent band of swashbuckling trend-buckers who shoot from the hip in interviews? Who cares if Miami is six feet under water? Not Stuart Kirk, HSBC’s former head of responsible investing, by Jove, and he flummin’ well said so. He’s been to Amsterdam, and he’s seen the future.

The investment industry is busy tying itself up in knots about the definitions of a whole load of stuff that can mean just about anything depending on who’s talking about them and what their intentions are.

Three steps to sustainability

The vocabulary and packaging of sustainability is easy to learn: step 1 – it’s all about a vaguely defined, but rosier future; step 2 – it’s also all about long-term stable, investment returns; and, step 3, add a picture of some trees to some copy about steps 1 and 2 (OK, hands up, we’re publishers, we do a version of step 3 most days).

If you dwell on this for a second, you start to see how reductive the whole thing can be. I mean, since when did the investment industry sell anything that promised a dystopian future and patchy or declining returns? Hasn’t it always sold sustainability, in the sense of something that they believed at the time could be sustained?

Actually, no, it hasn’t. It has operated largely to make money – in the here and now, this quarter, this year – and has largely made no bones about it. But the concepts gently lampooned above – subject though they are to interminable, dreary articles about their nuances – have driven a coach and horses through the orthodoxy of money management. Why? Because these concepts have introduced (intentionally or not) values, morality – and, by extension, politics – into the world of long-term capital.

Woke wars

It's a problem that “red-blooded, free market capitalist”, Jamie Dimon, has recently tried to finesse. Dimon, JPMorgan Chase CEO, says that “the stakeholder capitalism thing” isn’t woke at all. On the contrary, it helps you recruit and retain the best young talent and buys you client loyalty. That’s an edge, that’s sensible business …

This is what you get when the multi-faceted sales team is forced to go public and show itself in concert: a fudge. Being all things to all investors isn’t distillable into a single message. If you’re driven by red-blooded capitalist competition, then what happens when the competition demands you invest in all the stuff that these enlightened rookies and loyal clients don’t have any truck with?

And, as we know, some investors just aren’t, well, buying it.

In a recent interview, Utah State treasurer, Marlo Oaks, blamed inflation squarely on the shoulders of ESG.

“Today’s inflation really starts with ESG because if you think about why gasoline prices are so high, a lot of it is a supply issue. And the reason we don’t have enough supply in this country – one reason why – is that we don’t have enough capital going into oil and gas projects.

“So, in 2015 there were 59 funds raised globally among institutional investors; $46.6bn was raised. Six years later in 2021, 11 funds were raised; $4.6bn raised. A drop of over 90% in the face of improving economics in oil and gas. The only explanation that makes sense is ESG.”

Treasurer Alison Ball, of the Commonwealth of Kentucky, wrote in a letter to S&P: “State credit ratings should only be based on finances; they should not be tools to advance political agendas.

“Injecting political factors of this kind into credit assessments could be particularly detrimental to Kentucky and its signature fossil fuel industries.”

Boycott backlash

And just last week, West Virginia State Treasurer, Riley Moore, barred BlackRock, JPMorgan, Goldman Sachs, Wells Fargo and Morgan Stanley from new business on the grounds that they were boycotting the fossil fuel industry.

Republican treasurers, hedge fund managers with a beady eye on unloved returns, Mike Pence, Ted Cruz and Elon Musk, have all come out swinging and they’re landing blows.

The culture wars amplified by the credit crunch/Trump/Brexit eras have bled into the rhetoric of investing, and the gloves have come off. Maybe I don’t want your ESG. Maybe I don’t share your values, your morality, your politics or your vision of the future, and maybe, just maybe, I don’t even think climate change is that much of a risk.

It is a challenge that demands a coherent and clear response from the investment industry, which isn’t going to happen while it’s dancing on the head of the ESG pin and competing to define its own ideas.

Leadership lacking

The net-zero agenda requires leadership, resilience and determination. So there’s a group of Republican treasurers who manage about $60bn who might not want to do business with you. You’ll live. In the world of global institutional business, that is relatively small beer. If this group wants to devote itself to propping up dying industries and not supporting a sensible transition that could benefit the people it is supposed to serve, why have any part of it?

Whatever you think about this group of ESG detractors though – or what motivates them – they know exactly who they are and what they’re about.

Can we say the same about the industry that invented ESG, responsible stewardship and impact investing? An industry that we all need to stand up for the values that these concepts broadly represent.

Probably not at the moment, and the morass of self-reflection isn’t helping.

Peter Findlay is the publisher of Net Zero Investor.