One of the raging trends in finance has been ESG (environmental, social and governance) investing, and it has attracted trillions of dollars on promises to make the world a better place. But have these companies tackled climate change where it counts – stopping the rise of carbon emissions?
The Economist recently reported that ESG is on the lips of bosses and officials everywhere and has ballooned in recent years as the titans of investment management claim that more than a third of their assets, or $35trn in total, are monitored through one ESG lens or another. Sadly, those three letters have morphed into shorthand for hype and controversy. Right-wing American politicians blame a “climate cartel” for soaring prices at the petrol pump. Firms from Goldman Sachs to Deutsche Bank face regulatory probes as whistle-blowers accused the industry of “greenwashing” by deceiving its clients in its use of environmental, social and governance (ESG) criteria in its investment portfolio.
As The Economist concluded, although ESG is often well-meaning, it is deeply flawed. It has turned from an investment craze attracting trillions of dollars on promises to make the world a better place into a source of eye-rolling cynicism. It risks setting conflicting goals for firms, fleecing savers and distracting from the vital task of tackling climate change.
To avoid greenwashing, there is a need for measured impacts and clearer, stricter and more enforceable regulations … with teeth.
The April 2022 UN Climate Report forewarned that greenhouse gas emissions must peak before 2025 and must be nearly halved this decade to give the world a chance of limiting future heating to 1.5ºC (34.7ºF) above pre-industrial levels. It also revealed that it is inevitable that we will reach 1.5ºC (34.7ºF) this decade when the predicted destruction in nature will be irreversible.
The stark conclusion is that we are putting our “livable future” and those of future generations in grave peril. Our chances are narrowing according to the science, with only twenty nine months left before global greenhouse gas emissions must peak and drastically start to fall, a reversal that will require “immediate and deep” cuts in emissions everywhere.