Global financial institutions go green
Sustainable finance is winning more supporters, and skeptics.
By RYAN HEATH
05/22/2020
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The world’s biggest multilateral financial institutions and sovereign wealth fund are joining America’s biggest lenders in ramping up their sustainability focus.
The trillion dollar International Monetary Fund (IMF) is now attaching green conditions to its government rescues, Norway’s sovereign wealth fund has blacklisted the Canadian oil and gas sectors, and the London-based European Bank for Reconstruction and Development (EBRD) is putting nearly half its annual investment into green energy. The moves flesh out a long-term sustainable finance shift that until now has existed mostly on paper — such as a joint 2019 call by development banks to collectively finance $175 billion in “global climate action investments” by 2025.
One of those banks, the European Investment Bank (EIB) — the world’s largest development bank by assets — has ruled out new investments in fossil fuel projects, instead making loans to projects in fields like sustainable steel.
Five of the six largest banks in the United States have announced they won't finance fossil fuel development, either, drawing the ire of Energy Secretary Dan Brouillette. “I do not think banks should be redlining our oil and gas investment across the country," Brouillette told Axios this week. His language — comparing fossil fuel restrictions to housing discrimination against communities of color — sparked a firestorm.
IMF Managing Director Kristalina Georgieva told POLITICO that she now considers “disclosure of climate related risks” a basic requirement for governments working with the IMF. For the fund to hand over cash, governments will now need to look at phasing out “harmful energy subsidies” and creating incentives for a “low-carbon transition,” she said.
Georgieva takes a broad view of sustainable finance, and worries her environmental sustainability efforts are undercut by rising bankruptcies, inequality, and new government debt that will saddle younger generations. “Inequality holds economies back. It is actually unhealthy for everyone. Life can be better if we build more solidarity in our communities and within countries,” Georgieva said.
Georgieva isn’t alone in cross-examining the claims of those who wrap themselves in the mantle of sustainability.
Market analysts are beginning to poke holes in the work of companies and stock funds promoting themselves as green and socially inclusive. Vincent Deluard of INTL FCStone sent out a client note this week warning that investing based on Environmental, Social and Governance (ESG) objectives may have severe side effects: "ESG investors are winning their unintended war on people."
Deluard wrote that companies with strong environmental and social policies tend to have one thing going for them, other than being well governed: “The average company in the ESG basket has 20 percent fewer employees,” he said, compared to the median Russell 3,000 company.
That, Deluard said, means ESG funds may have unintentionally “punished employee-heavy sectors, such as airlines, retailers, and cruise lines,” accelerating “the disappearance of jobs for Capital CEO Erika Karp, a long-time proponent of impact investing, also casts doubt on the foundations of this year’s ESG investing trend. “There is no such thing” as ESG investing, Karp said, but “there is ESG analysis.” Within that, “the G is first among equnormal people.” It also raises the question of whether ESG fund managers are using the label as a trendy cover for traditional growth-oriented investing.
The world’s biggest multilateral financial institutions and sovereign wealth fund are joining America’s biggest lenders in ramping up their sustainability focus.
The trillion dollar International Monetary Fund (IMF) is now attaching green conditions to its government rescues, Norway’s sovereign wealth fund has blacklisted the Canadian oil and gas sectors, and the London-based European Bank for Reconstruction and Development (EBRD) is putting nearly half its annual investment into green energy. The moves flesh out a long-term sustainable finance shift that until now has existed mostly on paper — such as a joint 2019 call by development banks to collectively finance $175 billion in “global climate action investments” by 2025.
One of those banks, the European Investment Bank (EIB) — the world’s largest development bank by assets — has ruled out new investments in fossil fuel projects, instead making loans to projects in fields like sustainable steel.
Five of the six largest banks in the United States have announced they won't finance fossil fuel development, either, drawing the ire of Energy Secretary Dan Brouillette. “I do not think banks should be redlining our oil and gas investment across the country," Brouillette told Axios this week. His language — comparing fossil fuel restrictions to housing discrimination against communities of color — sparked a firestorm.
IMF Managing Director Kristalina Georgieva told POLITICO that she now considers “disclosure of climate related risks” a basic requirement for governments working with the IMF. For the fund to hand over cash, governments will now need to look at phasing out “harmful energy subsidies” and creating incentives for a “low-carbon transition,” she said.
Georgieva takes a broad view of sustainable finance, and worries her environmental sustainability efforts are undercut by rising bankruptcies, inequality, and new government debt that will saddle younger generations. “Inequality holds economies back. It is actually unhealthy for everyone. Life can be better if we build more solidarity in our communities and within countries,” Georgieva said.
Georgieva isn’t alone in cross-examining the claims of those who wrap themselves in the mantle of sustainability.
Market analysts are beginning to poke holes in the work of companies and stock funds promoting themselves as green and socially inclusive. Vincent Deluard of INTL FCStone sent out a client note this week warning that investing based on Environmental, Social and Governance (ESG) objectives may have severe side effects: "ESG investors are winning their unintended war on people."
Deluard wrote that companies with strong environmental and social policies tend to have one thing going for them, other than being well governed: “The average company in the ESG basket has 20 percent fewer employees,” he said, compared to the median Russell 3,000 company.
That, Deluard said, means ESG funds may have unintentionally “punished employee-heavy sectors, such as airlines, retailers, and cruise lines,” accelerating “the disappearance of jobs for Capital CEO Erika Karp, a long-time proponent of impact investing, also casts doubt on the foundations of this year’s ESG investing trend. “There is no such thing” as ESG investing, Karp said, but “there is ESG analysis.” Within that, “the G is first among equnormal people.” It also raises the question of whether ESG fund managers are using the label as a trendy cover for traditional growth-oriented investing.
Deluard noted dryly that there aren't any gender pay gaps or strikes with robots and algorithms.
Cornerstoneals, the G comes first,” she continued, because “a well-governed company is looking at environmental and social issues,” otherwise it isn’t well governed.
Karp said many ESG funds today “rely on poor-quality data” and include companies that align with goals that are “uninvestable,” such as the U.N. Sustainable Development Goals. Instead, Karp advocates looking at what a company does to increase access: “If you want women’s empowerment, for example, you need access to water, to education, etc.”
SUSTAINABLE FINANCE SNAPSHOTS
Asset managers mobilize for clean air: Asset managers convened by the World Economic Forum argue now is the time to invest in systems that will make the temporary dip in air pollution levels produced by the world’s Covid-19 lockdown permanent.
Blackrock's EU contract under investigation: Emily O’Reilly, the EU ombudsman, has opened an inquiry into the European Commission’s decision to award BlackRock a contract to study how to integrate environmental, social and governance objectives into EU banking rules.
ECB proposes bank must monitor climate risks: The Frankfurt-based supervisory authority has a new guide directing banks to consider climate risks, including internal stress-testing. “We need to start taking action for risks that will surely come to us in the future,” the ECB’s Patrick Amis told reporters Wednesday.
Karp said many ESG funds today “rely on poor-quality data” and include companies that align with goals that are “uninvestable,” such as the U.N. Sustainable Development Goals. Instead, Karp advocates looking at what a company does to increase access: “If you want women’s empowerment, for example, you need access to water, to education, etc.”
SUSTAINABLE FINANCE SNAPSHOTS
Asset managers mobilize for clean air: Asset managers convened by the World Economic Forum argue now is the time to invest in systems that will make the temporary dip in air pollution levels produced by the world’s Covid-19 lockdown permanent.
Blackrock's EU contract under investigation: Emily O’Reilly, the EU ombudsman, has opened an inquiry into the European Commission’s decision to award BlackRock a contract to study how to integrate environmental, social and governance objectives into EU banking rules.
ECB proposes bank must monitor climate risks: The Frankfurt-based supervisory authority has a new guide directing banks to consider climate risks, including internal stress-testing. “We need to start taking action for risks that will surely come to us in the future,” the ECB’s Patrick Amis told reporters Wednesday.
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