ESG and Impact Investing- Is it really happening?

If all the stories of ESG fund management, Impact Investing reports, mandates, commitments, one would thing that we are a tipping point. Sustainable investing is just about to breakthrough bigtime, and we all be awash in cash looking for social, environmental, and financial returns. Having done the TBLI conference for over 13 years I am often asked, is the glass half full, half empty or just empty?

We have seen significant money flows in low carbon activities, social investing, cleantech, Esg public equity analysis, Esg fixed income on sovereign and corporate side, and of course lots of ribbon cutting (press releases). Has the definition changed to allow more new members into the club? I think more and more investors for communications reason want to wear the badge that they are doing something. I don’t believe “that all that glitters is gold”. In general, I think there is a great tendency to accept a very weak cola light version, rather than going for the “real thing”. The financial community want to have the membership to the fitness club of sustainability but they don’t want to get on the scales to see if they lost weight.

This behavior is true for asset owners and asset managers; including pension funds, endowments, high net worth, grant making foundations, church, ngo’s. If you look at the dramatic growth of Sri in the Netherlands, 48 billion euros to 480 billion euros over two year period. One would be thrilled, but the reality is that many funds filtered out certain companies, like cluster bomb manufacturers and then claimed the whole portfolio as clean or and Sri or Esg fund. Putting on a nice coat when you are overweight doesn’t make you thin.

Engagement- Schmoozing or pressuring?

Engaging with a company to say “we are talking” without true behavioral change serves whom? Does engagement actually increase the share price or even change behavior? The rockefellers have tried to influence the company that they founded, exxon (formerly standard oil), to embrace fuel free energy system (renewable energy) without success. Does engagement work only when a company is failing financially?

ESG Goals?

Esg and impact are the buzz words, and there is an acceptance by some that social and environmental and governance are risks that need to be priced. The real question is what is the goal for embracing Esg or impact. Is the goal to create an economy based upon well being,like the mission of TBLI? Is the goal to be part of the club? Are investors trying to take out reputation insurance? Is it to be part of the herd that is building in running towards a low carbon, resource efficient economy? Do they feel that as asset owners they have a responsibility to society, because having a pension in a society that is in total collapse doesn’t compute?

Highest Retun on Investment- Lobby not to pay taxes.

Paying taxes are not a requirement or an issue for Esg analysts? A recent study in the US by Planet Money found that returns of 22.000% up to 100.000 % for hiring lobbyists. The results were massive tax savings which generated no jobs, or economic growth. Even conservative think tanks found these tax breaks were bad policy. Companies are successful, as Elizabeth Warren said because of the collective activities of govt. (police, roads, schools, fire dept., clean water, air) which happen because taxes are paid.

In America, there are many repors by JP Morgan, Harvard business school, and Rockefeller Foundation predicting large money flows and potential of impact investing. We need a reality check. Most of those funding reports are not doing impact investing. There is a great deal of chatter but that doesn’t mean there is a lot of check writing. Just ask any social entrepreneur who is trying to raise money. Let’s not crate another bubble. To me it seems like chickens flapping their wings, making a lot of noise, getting a lot of attention, but will never fly.

Deep down, I do believe that asset owners and asset managers will manage more and more of e their money In line with the societal,environmental, and governance impact of the company or project that is being funded. I believe that. In order to convince the controllers of capital to fully embrace ESG and Impact Investing, they need to see three things before the money is moved or analyzed differently. Investors must be shown self interest, opportunity and money flows. If they are shown this, then we will start to see significant changes in behavior. Until then, we will have nice stories, some of which will be fairy tales, but as the song says “fairy tales can come true…”

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