From intent to impact
ESG inflows cause froth, Big Oil finally has its Big Tobacco moment, why data needs a human lens. Plus, are investors and companies finally moving from intent to impact?
View from the top
🛢️ Days after Big Oil's Big Tobacco moment, which saw oil majors Shell, Exxon and Chevron face shareholder and legal reckonings over climate change, Exxon Director Ursula Burns christened the moment a "tidal wave" for the investment industry.
💸 Environmental investing is no longer a niche interest, reports the WSJ. Companies are lining up trillions of dollars to finance a shift from fossil fuels, with assets reaching almost $2trn globally in Q1 and more than tripling in three years.
🌱 But extreme inflows into 'good' stocks are causing froth, say BoA analysts, who "find no real premium for ESG overall." They add that improvement stories in energy—which has seen the strongest factor outperformance—are most compelling.
♻️ And the boom has led to rampant greenwashing, reports The Economist: the world's 20 biggest ESG funds hold c.17 fossil-fuel investments and a handful of gambling, booze and tobacco. Time for better disclosures, or better data?
⚒️ As the NYT puts an unflinching spotlight on commodity trading, we're reminded of the ethical chasm between commodity extraction and clean-energy tech. Too often, positive environmental impact comes at the expense of social impact.
🤑 Wall Street’s sustainability gold rush has conjured a ‘Green Bitcoin’, reports Bloomberg. The demand for green assets has incentivised institutional investors such as Goldman Sachs to throw their weight behind renewable crypto.
💰 That enthusiasm has seeped into the UK retail investment market, as research shows investors overwhelmingly prioritise sustainability. Not so for insurers: half treat responsible investing and overwriting as an afterthought, says ShareAction.
🗞️ When it comes to data, context matters. Pinning all your faith on an economic model alone "is like walking through a dark wood at night with a compass and only staring at the dial" writes the FT's Gillian Tett. Cue anthropology as an AI overlay.
Util in the news
📊 We recently teamed up with a.s.r. to quantify the net impact of its investments. Our findings shed light onto where impact is found, and where it needs to go.
📣 We were also delighted to join the first ESG Square e-conference, in partnership with HSBC, to discuss the big questions hanging over sustainable investing.
🤖 Our CEO, Patrick Wood Uribe, spoke to Climate Action about the importance of technology in capital markets, as well as problems with current approaches to data.
From intent to impact
Google “ESG: nice-to-have to must-have” and you get 68,100,000 results. It's fair to say that, today, most public companies report on their environmental, social and governance performance to an audience of expectant investors.
For public companies, it's no longer a choice. As the FT reported this weekend, “private equity has realised you can’t IPO a business unless it’s got a strong sustainability or ESG story, so they are hiring heads of ESG or sustainability at senior levels to oversee their portfolios." That fact was borne out by Deliveroo's IPO debacle this year: an event undermined by the company's perceived human capital failings.
With ESG (or policy and operations) having been in the spotlight for the last two years, it has long been evident that impact (or all the effects its products have on people and planet) would be the next locus of activity for shareholders.
As Big Oil recently found out, that moment may have arrived.
Royal Dutch Shell and ExxonMobil were forced into historic concessions by environmentalists and shareholders, with Shell forced to cut its net carbon emissions by 45% by 2030. The ruling, handed down by the Dutch court, will force Shell to cut its assets: it will need to slash at least a million barrels from its production every day. The watershed moment will likely trigger similar legal action against other oil and gas companies.
"There is no doubt that this week’s news has been not so much a shot across the bows as a direct hit to the hull of Big Oil,” Mark Lewis, chief sustainability strategist at BNP Paribas, told The Guardian. “They will have to recognise now that no amount of patching up the hole will do; shareholders and society want the vessel completely overhauled.”
On Friday, BlackRock CEO Larry Fink followed up the news with a warning that the ruling is not a solution—at least not if efforts are not equally applied to private markets. Speaking at a conference, he argued investors are "doing a lot of greenwashing because [they're] not changing the carbon footprint of the world, just the carbon footprint of a company." And research backs Fink up: last week, Fitch revealed that private equity is picking up fossil fuel assets even as asset managers divest.
Of course, solving the climate-change crisis does not lie entirely with investors. We have argued that it must also be the cause of policymakers. But in the meantime, we believe it benefits all stakeholders to start assessing companies as entire vessels, rather than the ways they patch up their holes.