Bloomberg) -- Was it greenhushing or greenwashing?
That’s the question the ESG world is asking after JPMorgan Asset Management and State Street Global Advisors quit the world’s largest investor group formed to fight climate change.
One interpretation of their withdrawal from Climate Action 100+ on Thursday, the investor coalition that pressures major polluters such as Exxon Mobil Corp. and Shell Plc to decarbonize, is that ferocious Republican attacks on environmental, social and governance investing strategies in the US are prompting high-profile firms to try and downplay or disguise their sustainability efforts. And it’s certainly true that finance sector climate groups have been top targets for the ESG backlash.
The other way of looking at it is that some large investors only sign up to initiatives like CA100+ when there’s a clear marketing benefit to doing so. Just a few years ago being a signatory of a group like CA100+ was seen as a badge of honor that was keenly touted in press releases and company reports. Today, membership has become a liability and those that were never truly committed to the cause are first to the exits.
Mark Campanale, founder and director of Carbon Tracker, an energy transition research firm, is ready to give the asset managers the benefit of the doubt. He said the anti-ESG lobby has “put the fear of God” into investors and that’s only going to get more extreme if Donald Trump triumphs in the US presidential election later this year. In this scenario, sustainability is going underground.
“Institutions will continue to embed sustainability because it’s a real risk, but they will do it without showing off or parading themselves,” Campanale said. “It’s easier to go underground instead of showcasing big initiatives that draw the wrong attention. What we’re seeing now is greenhushing.”
Others are less generous. Rebecca Self, a former senior green finance banker at HSBC Holdings Plc who now runs a sustainability consulting firm, said the departures lead her to question “if there was ever a real commitment by these organizations to the overall goals of the alliances in the first place.”
Ben Cushing, director of the Sierra Club’s Fossil-Free Finance campaign, is even more scathing. “Asset managers that cave to disingenuous political attacks from climate-deniers are signaling that they will abandon their fiduciary duty to mitigate climate risk for short-term expediency’s sake,” he said.
State Street Global Advisors, which manages $4.1 trillion, said Thursday that a revamp of CA100+ in which signatories are expected to take a more hands-on approach by requesting that companies “move from words to action” was inconsistent with its stance on proxy voting and company engagement. JPMorgan Asset Management, which oversees $3.1 trillion, didn’t mention CA100+’s new strategy, saying it left the group because it has made significant investments to develop its own climate-risk engagement framework.
BlackRock Inc. is also changing its relationship with CA100+, and its statement on Thursday, like the ones from the other firms, divided opinion.
The world’s biggest money manager said it will shift its membership in CA100+ to BlackRock International, meaning the New York-based parent will no longer be affiliated with CA100+. The firm said the majority of its clients that want investment solutions to help them meet climate, energy transition and decarbonization commitments reside outside the US, while the new strategy from CA100+ “would raise legal considerations, particularly in the US.”
For Adam Matthews, chief responsible investment officer for the Church of England Pensions Board, the move is a “pragmatic work around” that allows BlackRock to maintain its reputation among clients for whom climate is a big theme, while taking some of the heat away in the US, where the firm and Chief Executive Officer Larry Fink have been a focal point of the GOP campaign.
“BlackRock, while changing its affiliation, has recognized that a significant part of its client base wants the firm involved,” Matthews said. The move is “an acknowledgment of the ultimate destination the majority of assets will go over time,” he said.
Eli Kasargod-Staub, the executive director of Majority Action, a nonprofit in Washington focused on responsible investing, disagreed. He called BlackRock’s move “heinous risk mismanagement” that shows it views climate action as “optional window-dressing.”
Whoever is right on the reasons for firms leaving CA100+ or readjusting membership, this week’s departures raise bigger questions, especially about how much influence investors can really wield over polluting companies.
Harald Walkate, former head of ESG investing at Natixis Investment Managers who’s now a partner at sustainable investment adviser Route17, said the departures likely reflect a growing view among investors that engagement, the core strategy of CA100+, is a tool that rarely yields the desired results.
The initiative appears to be based on the premise that investors can force companies to decarbonize and “that this will get us to a net zero economy,” Walkate said. “But of course, addressing climate change will require a much more fundamental transformation of most industrial sectors,” he said.
The incentives of big finance may be misaligned with the world’s climate goals. What comes next may be regulation, according to Lucie Pinson, executive director at nonprofit Reclaim Finance.
“All this at least removes any ambiguity about the ability of financial players to support the transformation of the economy in a context of ecological urgency,” Pinson said. “Without regulation, catastrophic financial risks for the global economy and intolerable impacts for the millions of people on the front lines of climate change can be expected.”
To contact the author of this story:
Alastair Marsh in London at [email protected]