Good Cop... Bad Cop
It has never been more critical for funds and managers to have a robust ESG policy. It is no secret that the doomsday clock is ticking. We all know change is required, but all too often, it is something to look at tomorrow, and then it will be too late.
Unfortunately, many ESG funds have disappointed, having underperformed this year, although they are certainly not alone.
The threat of greenwashing is also too common. If an investor wants to buy a green fund, they need to be confident that it is doing what it says. Morningstar made it clear earlier in the year that this was not the case - but it is probably just the tip of the iceberg.
There is a great deal of global posturing, but how many COPs will it take to enforce change? If this is our annual alarm clock, which we promptly put on sleep mode, then it is no good to us whatsoever.
It will only be by mandating immediate change that you will see a real difference. Most institutional managers are trying but not always effectively. Perhaps this is style over substance - ultimately, policies and procedures must be the same.
This year, ESG has fallen off the radar. There have been various good initiatives and fund launches, but they are mostly small, and many are more of a sideshow. Actions, macro and mainstream, where you are talking to trillions of assets rather than billions, need to take place to see real change.
We need priorities and positioning, and we need to stick to them.
One of the most prominent advocates of ESG was BlackRock. Every action and utterance was about the E, the S or the G. Yet earlier this year, the asset manager partly pulled back, describing climate-related shareholder proposals as being ‘too prescriptive.’
Unfortunately for BlackRock, they are now somewhere in the middle, with a somewhat confused position, which is not ideal when we need leaders in this space. On the one hand, they have seen investments pulled by the likes of Florida, Louisiana and Missouri who see ESG as being “prioritised” over shareholder returns; while on the other they have been pilloried by Democrats who think they have not gone far enough.
Change will only come about as more funds on-board ESG principles to the extent that not doing so will appear abnormal. This had seemed to be the case at the start of this year. It is only with this that you will see better performances.
Change is required today. The problems are not disappearing - China has pumped out more pollution in the past eight years than Britain has since the industrial revolution. The fragility of our world, particularly catalysed by the geopolitical ructions we are currently experiencing, has never been more apparent.
As a final note, one of the other problems is complexity. There are still too many ESG structures and acronyms. It needs to be more accessible, more unified and better understood. There are, however, promising developments on this front, as you will see in the December edition of The Hedge.