This article features as part of IFA Magazine’s celebration of World Earth Day.
Changing consumer behaviour and government pressure creates huge investment opportunities, says Jellicoe, as, on World Earth Day, he warns us to be aware of generic ESG investing.
Sustainability is one of the hottest global topics, and for extremely good reason. It is unlikely that the Paris agreement targets of preventing global warming exceeding 2c are possible – 1.5c is now a distant memory. The implications of this on global weather patterns, and thus humans, are well documented.
Unparalleled change is required to our global economy. We are in the midst of a green industrial revolution and the good news is the world is finally waking up to the substantial changes needed to tackle the climate issues we face.
For both humanitarian and business reasons, it is imperative that companies of all sizes take action and embrace the benefits of a green economy. One the one had large parts of the global population face existential threats moving forward, one the other businesses that don’t change quickly face being left behind in this transition.
Decarbonisation is being backed by all major developed economies including the US and China and huge amounts are being invested in green energy, green technology and services. On top of this swathes of regulation are coming in simultaneously across transport, energy and services as we transition to net zero.
Consumers are becoming increasingly driven by sustainability and becoming more aware of a businesses’ green and social purpose credentials. Many are choosing brands (or abandoning them) due to their green and social purpose credentials, so, in order to ensure company longevity, businesses have to adapt to this ‘global eco-wakening’ very quickly.
Amongst investors, this is reflected by the massive growth in ESG funds. I.e. funds composed of equities with Environmental, Social and Governance at their core. Investors poured USD 142.5 billion into ESG funds in Q.4 2021 – this brought world-wide sustainable assets to USD 2.7 trillion. OnePlanetCapitals’ own research shows 70% of investors now, with high levels of concern over the impact of climate change.
However, there is a growing realization amongst both retail investors and institutional investors that this in-pouring into ESG funds is not without problems. The FT recently wrote about a potential mis-selling scandal taking shape since so many funds were labeling ESGportfolios for marketing purposes. Tariq Fancy the former CIO for sustainability for Black Rock famously labeled ESG funds as nothing more than ‘marketing hype’.
In August 21 a report by Climate Think Tank Influence Map found that 421 out of 593 ESGfunds it profiled were not aligned to the Paris targets in any way. On top of this, Morningstar recently cut 1200 funds with assets over USD 1.4 trillion from its sustainable investments list after enhanced due diligence on their make-up. Outside of regulatory change this represents a massive shake up of the ESG industry.
The problem with ESG is that it is a very loose definition of terms and targets which are largely self-policed and not well regulated. The ESG ratings agencies are massively divergent in their assessments which mean any corporate wanting to play the ESG game can often find a ratings agency to complement their business.
This makes it a perfect breeding ground for large corporations to jump on the ESGbandwagon. I’m not saying that any moves by a large corporate in the ESG space are ill-considered. Any company that is making efforts to combat climate change and reduce global warming deserves merit, and some firms do take ESG very seriously, self-policing well. However, ESG currently is largely an extension of CSR policy.