Written by by Tilak Doshi at wattsupwiththat.com
Terrence Keeley is a long-time ESG practitioner who until recently headed the official institutions group in the world’s largest asset manager BlackRock advising sovereign wealth funds, central banks, finance ministries, and public pension funds. He claimed in 2022 that “ESG investing could well be the biggest thing in finance since the Dutch East India company issued shares in 1602…ESG’s success or failure could literally impact every living creature on Earth.”
Mr. Keeley’s boss, Larry Fink, chief executive of BlackRock, was equally hyperbolic in his annual letter to CEOs in early 2020:
We believe that sustainability should be our new standard for investing…all investors – and particularly the millions of our clients who are saving for long-term goals like retirement – must seriously consider sustainability in their investments…I believe we are on the edge of a fundamental reshaping of finance.
Alas, the ESG and sustainability movement, a financial juggernaut in its heyday, has performed poorly in the past two years.
This poor performance has been a result of a combination of factors including the boomeranging impact of Western sanctions on Russia energy exports, the collapse of “clean” energy stocks, the rise in interest rates, and the widespread backlash against ‘woke capitalism’ and climate change regulations in Europe and the U.S.
ESG investment momentum has slowed on both sides of the Atlantic since 2022. In 2022, for the first time in more than a decade, investors pulled more money from funds marketed as “sustainable” than they added. In the first half of 2024, the U.S. ESG market experienced net outflows of over $13 billion, on the heels of a $9 billion outflow in 2023. Morningstar, a financial research firm, found nearly 2,500 fewer sustainable funds globally in 2023 relative to the prior year and 2024 is on track for an even steeper plunge.
According to Torsten Lichtenau, Bain and Company’s global carbon transition practice lead, “When you look at the importance of [environmental, social and corporate-governance efforts], you can clearly see a huge peak in 2021 to 2022 where there was also a lot of action off the back of the Glasgow COP26 climate conference in 2021. Now it’s dropped back to 2019 levels.”
Competitive Sustainability
Enter “competitive sustainability”, a buzz phrase of choice of its most vociferous proponents. The European Commission’s 2022 Annual Sustainable Growth Survey (ASGS) presented a “competitive sustainability” agenda for the EU covering four dimensions: productivity, environment, fairness, and stability. In a word salad worthy of Brussel’s unelected bureaucrats, it describes the agenda as one where “a fair, just, green and digital transition which requires sustainable social conditions, will serve as a foundation for future prosperity and resilience. Well-designed labour market policies and social protection systems are the basis for resilience and inclusive growth.”