Magazine Issues » Dec 2018-Jan 2019

OPINION: ESG comes of age

Fiona_Rintoul2018 has been a year of political shocks. Russia’s actions in Crimea. The murder of Saudia journalist Jamal Khashoggi in Turkey. The election of a populist government in Italy.

It’s hard to believe that 2019 will be any quieter. The delay to Angela Merkel’s plane when she was on her way to the G20 summit in Buenos Aires at the end of November felt prophetic. Mrs Merkel’s tenure is coming to an end, and who knows who will replace her – not just as chancellor of Germany but as a voice of reason in an increasingly crazy world.

Then there is Brexit. At the time of writing, the future of that project is opaque. For business and for investors, however, one statistic stands out. Brexit is costing companies in the EU27 and the UK €69 billion a year, according to consultants Oliver Wyman. Of that, €37 billion falls squarely into the lap of EU27 companies. You’re going to wait a long time to hear the UK government say this, so we’ll say it for them: sorry, guys.

The funny thing is that these political problems, bad as they are, do not feel like they are the worst that we face. There is a looming giant of a problem on planet Earth that has the potential to make the current global political turmoil look like the petty squabblings of Lilliputians. It is, of course, climate change.

After a summer of infernos and floods, a warning at the recent UN Climate Change summit in Katowice by naturalist David Attenborough that the collapse of civilisation and the natural world is on the horizon felt all too real. In much the same way that an illness in the family makes you forget mundane concerns about money and what you look like, such warnings serve to illuminate the essential triviality of President Trump’s tweets and British politicians’ failure to lead.

The finance industry has a huge role to place in solving the many problems associated with climate change. Certainly, progress has been made, but it isn’t happening fast enough.

The summary and recommendations on the 2018 biennial assessment and overview of climate finance flows were presented at a side event at COP24. The assessement showed that climate finance to developing countries through bilateral channels, multilateral development banks and multilateral climate funds increased in 2015-16. “This is an encouraging and positive trend,” UNFCCC executive secretary Patricia Espinosa told participants. “But it also tells us that we’re still far from where we should be. The fact remains that climate finance still represents only a very small fraction of overall finance flows.”

We hear that environmental, social and governance (ESG) investing is becoming mainstream, and it is. The UN Principles of Responsible Investment now have 2,000 signatories. But the severity of the challenge means the proportion of investors implementing ESG needs to climb towards 100% and fast.

It may not happen in 2019, but 2019 does look set to be the year when ESG comes of age. As Maarten Bloemen of Franklin Templeton Investments points out in a recent blog post, the biggest risk now is to do nothing, particularly as some of the greatest contributions to reducing global climate-change risk may come from traditional companies changing their operations.

“Curbing an increase in global temperature requires unprecedented changes in the attitudes of countries and businesses to the environment,” he writes. Investment managers have a certain power here. It is time for them to use it to help make those unprecedented changes happen.

Fiona Rintoul, editor-at-large at Funds Europe

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