Ethical Finance Global 2022|ESG in a volatile world: Profit, Purpose or Politics? Part One
The seventh cohort of the Ethical Finance Global 2022 - which the Chartered Banker Institute co-sponsors - took place as in-person event after being held virtually in 2020 and 2021. In a series of two blogs, Mariam Lawal - recently appointed Sustainability Analyst at the Chartered Banker Institute - reflects on discussions from the Summit, which took place at NatWest Group's Edinburgh Headquarters in September 2022.
The focus of this year's event was on the motivations and priorities for the Environmental, Social and Governance (ESG) agenda of firms. It asked: "Are we doing this simply for profit, where we aspire to put a ‘green’ label and enhance the commercial appeal? Or for purpose that shows that our actions are aligned with creating change in the real economy? Or simply for politics which considers the value system upon which our actions are anchored?” Part One illuminates some emerging discussions from the morning of the summit which focused on current macroeconomic issues impacting global markets and ESG, challenges in financing climate adaptation and mitigation, and the emergence of the S in ESG as a core priority, among other key issues. Keynote speakers, fireside and panel discussions (including Q&A sessions) featured representatives from the banking and finance industry, and key figures from the UK and Scottish Governments including The Rt. Hon. Alok Sharma MP, COP 26 President and Michael Matheson MSP, Cabinet Secretary for Net Zero, Energy and Transport, Scottish Government. Part Two, which will follow soon, considers aspects of the afternoon session of the Summit.
In her welcome to delegates, Judith Cruickshank, Regional Managing Director Business Banking, NatWest Group, contextualised the volatility of today’s world - coming through a tough two years of global pandemic, geopolitical and economic pressures, significant cost increases, and major supply chain issues. She added that our present reality means that basic survival needs compete for the attention and resources required to foster a low-carbon economic transition. Omar Shaikh, Managing Director, GEFI then noted that despite the much-publicised struggles, ‘ESG’ has progressed considerably over the years - from the tripling of global sustainable funds over the past three years (around 800 million to 2 ½ trillion dollars) to the launch of the Global Financial Alliance for NetZero (GFANZ), where hundreds of institutions have committed trillion-dollar worth of assets to climate action.
The Summit also featured a keynote speech from Tariq Fancy, former Chief Investment Officer for Sustainable investing at BlackRock, who famously left the firm in 2019 citing his disillusionment about the real-world impact of sustainable investing and has since gone on to found the non-profit organisation, The Rumie Initiative. He noted that the ‘progress’ around ESG is not yielding the impacts for which they were primarily designed, adding that emissions are still on a constant rise, akin to inequality and other social issues. This was partly attributed to the ways in which ESG-related measures are viewed and applied, such as divestments. This Fancy felt, essentially translates to “moving money around to reduce the carbon intensity in portfolios without creating any real change in the economy.” This is similar to developing ‘sustainable’ or ‘green’ products that have no 'additionality' in the transition. However, measures need to be viewed through the lens of purpose i.e., the reason for which they were created, and as the means to an end and not the ‘end’ itself if we are to see change in the real economy. There was also a call for [mandatory] systemic regulation with a gradual shift from ‘volunteerism’ if we are to see desired impacts. The lack of impact was also attributed to possible greenwashing activities in a speech by Dame Susan Rice, Chair, FSCB(1) & GEFI Steering Group, who expressed the need to challenge the labels we apply to our products to ensure they represent their true purpose, and that accurate information can be passed onto investors. Dame Susan suggested that while regulations may not solve all issues, by implementing the right organisation culture through which every actor screens their actions, we can achieve desired outcomes without ‘all the right’ regulations in place. Other discussions also looked into the challenges with financing climate adaptation and mitigation, citing the cyclical nature of politics, ambiguity and presence of too many metrics and terminologies, and a lack of data as the leading causes of confusion, inaction or ‘mis action’ among financial actors.
From policy and regulation to organisation cultures and financing, we are reminded that the challenges, and indeed the solutions, for the climate change crisis are embedded within systems created by the most basic form of society ‘people’. Seynabou Ba, Founder, ESG Africa, speaking on a panel session, proposed that the ‘S’ in ESG represents the people, the most important factor and the driver of all other pillars in ‘ESG’. A common opinion voiced throughout the session was that the ‘S’ in ESG has, however, remained low among organisational priorities despite being the oldest part of ESG. One suggestion was that this could be due to the difficulties in measuring and modelling social good compared to more physical environmental issues.
Overall, the broad consensus among the speakers was the need for banks and financial institutions to promote aggressive shareholder engagement to create real world impact, to foster collaborations with the regulators in order to set clear and long-term targets, to increase financial incentives for climate adaptation, to improve data and standardisation of metrics, and to educate its workers particularly executives, frontline staff, and wider stakeholders.
(1) Financial Services Culture Board
Chartered Banker Institute