- UK inflation slowed to 6.8 per cent in July.
- Evergrande, the Chinese property giant, filed for US bankruptcy protection.
- Sir Jonathan Van-Tam, UK’s former deputy chief medical officer, took a role as a senior medical consultant at vaccine maker Moderna.
Multiple asset managers have received legal requests from the US Securities and Exchange Commission for documents as part of a misconduct inquiry into the marketing of green funds.
So what? ESG can’t catch a break. Between a widening political backlash against “woke capitalism” and rising climate and legal risks, firms don’t know which way to turn when it comes to environment, social and governance issues.
It has led to a tendency to either “greenshout” or “greenhush”.
“Greenshouting” involves marketing financial products that aren’t as green as they say on the tin. After the term “ESG” was coined in 2004 in a UN report, many funds rebranded themselves, extracting higher fees from clients along the way.
But many lacked a real business strategy to back up their PR efforts. Actions already taken by the SEC against this type of behaviour include:
- a $1.5 million penalty against BNY Mellon for allegedly omitting ESG information about the mutual funds it managed;
- a $4 million fine against Goldman Sachs for filling out ESG questionnaires after securities for its funds had already been picked; and
- an unsettled case against DWS for which the German asset manager has reportedly set aside €21 million.
“We are certainly likely to see more SEC enforcement cases,” says Stacy Kray, a partner at Orrick Herrington & Sutcliffe LLP. “ESG is such a quickly evolving area that it can be hard for anyone to predict, or keep up with, regulatory expectations, which leads to a certain amount of regulation by enforcement.”
But will it be enough to deter further false claims? In a survey last year of 1,500 executives by Harris Poll, 58 per cent admitted their companies were guilty of greenwashing; it’s 68 per cent in the US.
The timing of the SEC’s crackdown coincides with orchestrated attacks by US conservatives on ESG. In March, attorneys general from 21 states sent an open letter to 51 asset managers alleging their ESG demands on companies were a breach of fiduciary duty. Democrats now hold a 3-to-2 majority among SEC commissioners, and view the regulator as a useful counterweight.
But evidence is emerging of a silencing effect from the conservative attacks.
Tread softly. “Greenhushing” is when companies keep information about their sustainability goals private, either to avoid broadsides from politicians or scrutiny from regulators.
By the numbers:
- 23 per cent – of companies with science-based emissions targets in 2022 who said they would not publicise them, according to a survey of 1,200 companies by consultancy South Pole.
- 47 per cent – decrease in mentions of “ESG” on S&P 500 earnings calls between Q1 2021 and Q1 2023.
- 24 per cent – of staff at medium or large companies who felt that their business had – either deliberately or inadvertently – “greenhushed” their achievements, according to a YouGov poll of 1,000 senior decision makers.
Larry Fink, the proclaimed godfather of ESG, says he doesn’t use the word anymore because it’s been “entirely weaponised” (last month, Blackrock announced the former CEO of Saudi Aramco is joining its board; a strategic appointment and also a signal). Last week an investigation by Bloomberg found McDonald’s had quietly removed mentions of the acronym from parts of its website.
The calculus has changed on how to label funds, says Tariq Fancy, former chief of sustainable investing at Blackrock. “You might get attacked for greenwashing by the Left, and for wasting shareholder money by the Right.”
Twilight for the term? “S” and “G” values are hard to measure and quantify, and don’t scale across countries. Social value derived from investing will have a different meaning depending on whether you’re based in Saudi Arabia or San Francisco.
“The marketing is moving away from generalised ESG into specific areas like renewables, the reuse economy or batteries,” says Fancy. “That can only be a good thing in the sense that it’s more real, descriptive and valuable.”
