The Ukraine & ESG

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So many great pieces about how the Ukraine invasion and ESG potentially intersect. Here is a sampling:

Sasja Beslik’s newsletter – here’s an excerpt: Let’s stay there for a second. This has nothing to do with morals. The promise of ESG is to manage the down and upside of risks and opportunities associated with the investments we make on behalf of our clients, including where they operate.

The sanctions by the UN, EU or US imposed on bad actors such as Sudan and North Korea were followed by everyone. But hitting Russia and Russian associated investments after 2014, despite the sanctions in place, was never really even discussed.

The information flows from our we-cover-all-of-it-for-you ESG data suppliers since 2014 do not include warnings on stock level such as “company derives % of its revenues from UN/US/EU sanctioned country” or “this company has production, sales and distribution in the country that has invaded other sovereign countries twice in last 10 years.”

That is one side of it. The other side is our own so-called ESG analysis, and people on that side of the business sort of lost track on why they are there in the first place. Let me be clear: It’s not to be complacent, or to be loved by portfolio managers, or to make sure that the board and the CEO respect their knowledge.

The role of ESG professionals has never been so important, yet never so marginalised as it is today. Reason? Today, ESG is just business, integrated, part of the crew, part of this ship’s feature. It has lost its true intent. Today, ESG is about having a career, about being a respected member of financial community, about participating in conferences, giving speeches. It is no longer about changing the financial toolbox, about challenging the blindness of an industry for which externalities is something taxpayers will pay. No, it’s about selling mediocre and – most of the time – useless ESG funds and investments.

Sadly, it is no longer about being a pain in the arse, raising questions about “why do we invest in a company when they operate their business like this?” or “why do we invest in Russia or China when we know what is going on there?”

Alison Taylor’s note – here’s an excerpt: Whether it is changing consumer choices, shifting perceptions of oil and gas, attracting Gen Z employees, horror at your T shirt being made by child labor, horror at slave labor that caught your prawns, horror at authoritarian governments persecuting minorities, horror at the PR industry making millions from climate denial, horror at what Facebook is doing to our society, the issues are ETHICAL. They might translate into social/environmental/governance risk (reputational risk, if you insist) but the notion that you can glibly separate sustainability and ethics anywhere but in a bad investment fund strategy is just empirically ridiculous. You can mutter about inappropriate conflation as much as you like, but a ton of the “business case” for ESG is attracting employees and customers. In other words, living humans, who are not making these distinctions.

An observation I have is that much current commentary from ESG finance people combines such banal/strange statements with a DON’T WORRY EVERYONE THE ADULTS ARE HERE tone.

Felix Boudreault, managing partner at research firm Sustainable Market Strategies is already out of China. “As an investor, you have to consider not just the company, but the environment in which they operate,” Boudreault said. “And we are saying the same for China. Its uninvestable from any ESG perspective. By a strike of a pen, a bureaucrat in Beijing can really kind of wipe out an entire sector like they did with education technologies recently.”

Jeff Twentyman’s note: “The mood is changing. Long gone are the days when a business could sit back and say it’s just doing its job. Nothing illegal. And for now, it seems firms will only take strong moral action when enough people are watching. Will this lead to a deep self-examination, a change in attitudes and a moral realignment?” Interesting and timely piece here by Krishnan Nair. Last week the “amorality” of legal profession was mentioned in parliament. Commercial lawyers have choices and will be judged by those they make and don’t make.

Bob Eccles’ note about his Forbes article: It has been hard to keep track of all of the tragic news coming out of Vladimir Putin’s increasingly brutal and unprovoked assault on Ukraine. One rapidly evolving story I’ve been following is the rapid shift taking place from excluding to seriously considering including defense companies in “ESG investing” portfolios. This has created an unexpected opportunity to address the murky and confusing world of “ESG investing,” by whatever name. I attempt to provide some clarity to this topic by making four points concerning: (1) lack of clarity in the labeling and marketing of ESG funds, (2) the over simplicity of exclusions, (3) the difference between ESG integration and impact, and (4) the role of engagement and stewardship.