FinTech Global recently explored whether there is enough accountability and transparency related to ESG. One of the common themes was the need for standardisation within how firms handle ESG processes. However, it is hard to have a level of standardisation when opinions do not always match on the importance of ESG or countries shift their priorities.
The UK is just one of many countries that has recently shifted its climate related targets. Last year, Rishi Sunak announced a significant u-turn on the government’s climate commitment by pushing back the deadlines for the sale of new petrol and diesel cars, delaying the net zero goals.
One country stuck in a constant back and forth with ESG opinions is the US. Last year, the US House of Representatives approved legislation aimed at blocking a new law allowing the consideration of climate and ESG factors by retirement plan fiduciaries. However, the movement resulted in President Biden issuing the first veto of his presidency. Following this, Ron DeSantis, the Governor of Florida, headed an 18-state alliance aimed at banning the use of ESG considerations in state and local pension funds. This attempt to block ESG considerations followed a similar move from DeSantis in his home state, as he barred fund managers for state and local entities in the state from considering ESG factors in investment decisions.
Elsewhere, Wyoming voted down two pieces of anti-ESG legislation that would have impacted the state’s ability to invest in a range of funds, Arizona ended investigations into ESG investing practices and US Republican congressmen proposed a new legislation to restrict ESG investing in retirement funds. The constantly changing rules makes it hard for firms to know where they stand, and a standardised set of rules would give more stability to ESG.
However, despite opinions changing and new measures being implemented David Duffy, the co-founder of corporate governance education platform Corporate Governance Institute, doesn’t think the anti-ESG lobby is not having that big of an impact on the push for sustainability.
He said, “It’s true that politics has an effect on the ESG landscape, and the rhetoric alone might sway countries one way or the other to some extent. But, it’s important to distinguish rhetoric from reality. Take the US as an example: it has a persistent anti-ESG lobby. However, money continues to flow in large volumes towards ESG investments because ESG still provides a window to sustainable financial success in the decades to come.
“Some investment leaders like BlackRock are growing vocally tired of the actual term – ESG – because of how politicised it has become, but they have sustained commitments to the underlying principles, which will continue to be used as tools to measure success.”
Mark Woodward, an investor director at several ESG companies, shared a similar opinion. He said, “The impact of any political change or decision-making regarding climate policies is likely to be temporary in terms of its long-term impact on climate change. That’s just the nature of politics. But businesses’ ESG commitments and KPIs are not associated with government budgets, so there’s no need for them to be a political football.”
He continued by stating that an ideal world would see ESG become a cross-party concern due to being a multi-decade issue that cannot be resolved in a single political tenure. Unfortunately, this is not the world we live in, and different parties will have their own commitments and where they wish to budget. As a result, businesses will step in.
Unfortunately, there are always going to be varying commitments from different parties due to budgeting concerns and various other issues in play. For this reason, I believe that the green transition will be driven by private players.
“The good news is we are starting to see businesses embrace the positive impacts of ESG on their employees and culture, and the knock-on impacts of reduced risk, reduced supply chain disruption, opportunities to enter new markets and save costs. ESG is no longer being viewed as an inconvenience, it’s being embraced as a value-add. As this trend develops, private businesses will overtake the government as the driving force for the green transition. Ultimately, businesses are way more likely to fix the problem than any government.”
The importance of alliances
If governments are not going to be the main driver in a shift towards ESG, it raises the question of how important alliances among industry peers will be. With firms coming together to work towards a standard, it could help more in the industry develop their own routes towards sustainability. Woodward said, “There is an important role for peers working together to lobby for change as well as to work collaboratively with the government to accelerate progress. Take the government’s Transition Plan Taskforce, for example. This involves businesses producing transition plans and providing transparency about their business plans, from culture to reporting. Firms must engage with these structures and initiatives to maximise the impact of collaboration.”
One important alliance in the wealth management world for ESG is the Institutional Investors Group on Climate Change (IIGCC), which was established in 2001 to serve as a forum for collaboration between pension funds and asset managers on climate change issues. It later spun out from the Climate Group in 2012 to become its own legal entity. Today, the IIGCC is a European membership that aims to help the European investment community work together towards the goal of a net zero and climate resilient future by 2030. It currently boasts a membership of over 400.
One of the main roles of alliances, networks and professional groups is to offer standards and guidance to meet them. This is something that is very helpful for the ESG landscape, which often lacks a sense of standardisation across rules.
Ildiko Almasi Simsic, a social development specialist and author of What Is A Social Impact?, said, “If we look at IIGCC specifically, we see that they are trying to establish a common approach to define and report on net zero and climate resilience initiatives. They also set standards through their frameworks, tools and topics presented for capacity building. They bring in various stakeholders who have an overview of the same issue from a different perspective.”
Ronan Donohue, a financial markets consultant, echoed this. He said, “I would say quite important. Industry bodies that can articulate a collective voice and provide feedback on consultations etc are essentially an efficiency helping authorities build a framework that works for all. Feedback is often confused with pushback, but, while there is a certain amount of that, the every-day experiences of participants in an ecosystem are central. We have seen equivalent voices in banking play a valuable role on arriving at post-GCC regulations.”
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