OK, it doesn’t work very well. But at least the campaign has provoked authentic debate within the investment community. Which is just as well because we’re still on track for runaway climate change.
According to Fatih Birol, chief economist of the International Energy Authority: “Current energy trends are not sustainable,” with a rider that “there is a need to change course in a dramatic way,” and that “gradual change will not be enough to change the track we are following”.
But the campaign has provoked authentic debate within the investment community.
The results of a recent survey conducted by Responsible Investor are revealing. Some 98% of respondents said investors weren’t doing enough to evaluate and integrate the risk of fossil fuel exposure and climate change into valuations and buy-sell decisions
Almost the same number (94%) said investors weren’t doing enough to safeguard corporate and market health.
And asked whether criticism of investors was fair, 53% said yes, whilst 40% said it was too light.
Yes, this is a select sample – a subset of the readership of a specialist journal. But they can’t be dismissed as ill informed about disconnects between ‘walk and talk’. Tipping points don’t, by definition, start as majorities.
Some answers reassure us that this is not a starry-eyed group of closet divestment supporters, but specialists who’ve realistically considered the debate.
When asked why they thought investors were not doing more, investor evaluation (short-term, relative returns) came top.
A total of 44% thought divestment campaigns could create some isolated problems but wouldn’t have a systemic impact, while 40% thought it was the start of a paradigm shift.
Asked whether they were glad that some are campaigning for divestment because it gives them more space to manoeuvre on the climate issue, 49% agreed fully and 34% agreed partially.
What is most interesting about the survey is what respondents forecast for the future.
What is the most strategically important thing investors could do? Pushing investee companies to stop lobbying against climate action was top, pushing governments to fix a realistic price for carbon came third and pushing governments to create a level playing field in subsidies was fourth – meaning three of the top four actions relate to policy and politics. This is in stark contrast to investors’ current focus.
Asked to envisage a positive scenario in 2050 in which investors had been a major player in the fight to avoid catastrophe, respondents were then asked who was most responsible. NGOs/media came first and current/incoming leaders of these organisations came last.
And in contrast to publicly expressed investor opposition to the Asset Owner Disclosure Project, 91% either fully, or partially, agreed that “identifying leaders and laggards in the investment community should be a priority: it will drive up standards”. And 93% partially, or fully, agreed that “public accountability with a methodology independent of investor control is a good thing”.
In a refreshingly frank assessment of professional understanding, 52% said they had no idea what the right price for carbon should be to make sure we stay within the 2ºC target. Thankfully no one took the option of €3 per tonne but opinion was pretty divided with 22% saying €70, 11% saying €50 and 13% saying €30. This diversity reflects a lack of consensus. Indeed some, such as Goldman Sachs former quant guru, Bob Litterman, have made a convincing argument that the event price might be much higher still.
So is this a sample of disgruntled and marginalised ESG specialists?
At the panel I chaired at the Responsible Investor event, and as reported by IPE, the head of the body charged with co-ordinating the engagement efforts of the SEK1trn (€112bn) Swedish buffer fund system acknowledged that things are far from acceptable.
And the call to Oxford University to divest has been signed by academics including the former UK chief scientist, Prof Robert May and Prof Gordon Clark.
We live in interesting times.
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