ESG was poorly defined when I began to explore it some ten years ago. And now, a decade later, it feels like the term has become even more misunderstood.
I think there’s two reasons for this:
- It’s a young industry that’s still evolving
- The incumbents (ie. fossil fuel interests) have no interest in making change, and they’re digging in their heels. They’re doing their darndest to spread confusion and fear about how ESG might force change in the finance sector.
The point is, it’s all about communication.
In reality, ESG is little more than a prosaic layer of risk assessment covering an investment portfolio.
The problems started when fund managers began marketing ESG funds as all-encompassing solutions to everything from climate change to gender inequality. (Some of which are now facing legal action).
This has led to ESG being criticised for failing to do something it was never intended to do.
You’d assume it would be the die-hard greenies that would be angry at such exaggeration and hyperbolic language. But instead, it’s those at the other end of the spectrum that are most upset.
It’s the incumbent fossil fuel interests, and their supporters in conservative political parties, that have emerged as the most vocal opponents of ESG.
As Jon Hale from Morningstar explains:
“These efforts are an attempt to gin up another phony grievance about how ‘liberal elites’ are destroying the country that is a staple of the Republican playbook today. Take a concept that few people know much about—ESG—and define it in the most extreme, distorted way possible. Remember CRT? This kind of rhetoric reflects psychological projection: By painting your opponent as a radical extremist, you make your own views seem less extreme.”
It’s a protectionist delay tactic by fossil-fuel interests, desperate to drain their oil wells, and squeeze another decade out of their aging infrastructure.
But of course this kind of disinformation isn’t new.
Documents from 1993 show that Exxon and Imperial Oil were well aware of the impact burning oil would have on the atmosphere, the climate and our planet.
But rather than changing their product, they decided to change the story. They crafted a communications strategy aimed at discrediting the potential impact that policies like a carbon tax could have on the problem.
Communication is a powerful force.
Crafting a New Story About Climate Change
If disinformation by big-oil is at one end of the communication spectrum, climate-doomism is at the other. Neither approach is effective, and both succeed only in making us angrier.
And they don’t reduce our dependence on burning fossil fuels.
The story we need to tell is one of opportunity and optimism.
The definition of ESG shouldn’t matter. Instead, we should focus on ensuring climate-tech solutions are more attractive than the old, polluting ways. We need investors to be clamoring for the renewables deals, and shunning those that can’t show emissions reduction progress, or don’t disclose their carbon data.
There’s a lot to be excited about.
Here’s just a few examples.
On the technology side:
- Renewables are now cheaper than coal fired power
- Electric cars are in huge demand, they’re faster, and cooler than petrol powered cars
- Direct air capture is scaling (albeit slowly) to become a viable way to remove carbon from the atmosphere
An accounting revolution:
- Global accounting norms are on the cusp of revolutionary change. The dismal science is FINALLY adopting rules around how companies should report their sustainability impacts on the world.
- TCFD got the ball rolling, and now the ISSB is taking it global, with hopes governments around the world will make reporting on climate-related risks mandatory.
The Climate-tech opportunity:
- We’re currently experiencing a boom in climate-tech investing
- Venture investors are raising funds in excess of $100m, despite a market downturn
These are the stories that should be leading the conversation.
The world of climate-tech is a powerful example because it doesn’t get bogged down in communicating its ethics or values, instead, it’s matured into a meritocracy of engineering and financial returns. This is how capitalism intended, and nothing gets people’s attention like $$.
And yes (before I receive a barrage of hate-mail) I agree that government policy and climate regulation is profoundly important. But of course our politicians are just as susceptible to a powerful story as the rest of us.
We need to change the narrative in how we lobby our local members as well.
I’ll leave you with a video of Gary Gensler, Chair of the SEC, explaining why ESG funds are like fat-free milk: