Newsletter: Moral Money
What you need to know about the fast-expanding world of socially responsible business, sustainable finance and more. Delivered twice a week.
Hello from New York, where we’ve just wrapped up another climate week and UN General Assembly gathering. We have cobbled together three themes from the week below.
But first, we’re very happy to present “Inside ESG”: the FT’s Behind the Money podcast series! In our first two episodes, you will hear from Leila Abboud, the FT’s Paris correspondent, about the downfall of ESG star Emmanuel Faber, the former chief executive of Danone. You will also hear from Gillian Tett, Andrew Edgecliffe-Johnson and Tariq Fancy, the former BlackRock chief investment officer for sustainable investing. There are more episodes to come. Your Moral Money team is really excited about this series and we would love to hear your feedback, as always, at moralmoneyreply.
UN meetings, the week shed light on climate progress
The in-person speeches and conferences for the UN and climate week offered a comforting return to some semblance of normality after 18 months of a punishing pandemic. Yet anxiety remains that global warming is only getting worse. We identified five themes from the week that show where things stand now and what’s ahead as we look forward to COP26.
As our colleagues Leslie Hook and Camilla Hodgson reported, there was a glimmer of hope that the animosity between the US and China might not scuttle global warming prevention. Xi Jinping’s surprise announcement that China would stop funding international coal power plants “injected a rare note of optimism into fraught climate negotiations”.
Environmentalists applauded China’s announcement, but raised questions about how exactly it would be implemented — and warned that China needed to stop domestic coal too. “Hopefully this important decision on financing international coal can also inspire China to follow a similar path domestically, for the health of its people and the planet,” said Greenpeace. Quite right.
Despite Europe’s natural gas crisis, UK prime minister Boris Johnson gave no sign of diluting the importance of addressing global warming or downgrading COP26. “It is time for humanity to grow up” and “[take] responsibility for the destruction we are inflicting” on the planet, he said. “We are doing such irreversible damage,” he added, that soon “we will have made this beautiful planet effectively uninhabitable”. If Johnson and the UK can match climate rhetoric with action we could be heading in the right direction. However, one big question is whether the US administration of Joe Biden will have anything to offer in November, since much depends on the fate of Biden’s infrastructure bill. That is fraught — at best.
The financial sector continues to play a big role in making progress. The week included an announcement by Goldman Sachs and Bloomberg Philanthropies to fund $25m for low carbon emissions development in south Asia. Mark Carney, credit rating agencies and the Big Four accounting firms teamed up to commit to align “all relevant product and services” with achieving net zero greenhouse gas emissions by 2050, and to setting “meaningful” interim targets for 2025 within 12 months of joining. Hooray. However, the slow pace of action by G20 leaders leaves some private sector players fearing that governments will toss the ball to them in coming months — or fail to co-ordinate actions in a sensible manner.
The phrase “yellow vests” (or “gilets jaunes”) was being quietly tossed around this week, since rising gas prices in Europe have sparked fears of a popular backlash against climate change reforms. The last time this happened in Paris — with protesters wearing yellow vests to express anger over fuel taxes — the government was forced into a U-turn. More recently, some politicians blamed electricity blackouts in Texas on renewable energy reforms too. The UK government is scrambling to avoid a repeat of this. But unease is increasing.
Jeff Bezos, founder of Amazon, is an increasingly important person to watch in the green philanthropy world. This week Bezos announced that $1bn of his $10bn earth fund would be given away this year to support conservation initiatives, under the leadership of Andrew Steer, a well-respected figure in this field. “Nature is our life support system and it’s fragile,” Bezos declared, after revealing that he became more interested in green issues after going into space in July. “I heard that seeing the earth from space changes one’s point of view of the world, but I was not prepared for just how much that would be true.”
Accenture finds opportunity in prioritising ESG
Companies that go above and beyond their peers to respect the environment and social issues generate at least 20 per cent more in profit, according to a new report from Accenture and the World Economic Forum.
However, most companies have a long way to go. Accenture scored more than 4,000 companies on their “Sustainability DNA”, determining the average score was just 52 out of 100. The yawning gap points to an opportunity for Accenture, in the form of services the consulting firm could provide for their clients.
To that end, the firm is in the process of giving its more than 600,000 employees ESG training. Peter Lacy, Accenture’s chief responsibility officer and sustainability services global lead, likened it to the shift to digital a decade ago.
“We have already upskilled more than 63,000 employees in the past six months alone,” Lacy told Moral Money, noting that Accenture’s capital markets division had shifted from the slowest to adopt ESG “to the most excited”.
Accenture is playing into a trend visible across consulting and accounting firms, some of which are hiring thousands as their clients come under pressure both to improve their impact on the planet and to quantify the dollar value of the ESG risks they face. (Kristen Talman)
Women struggle to break the glass ceiling at banks
When Citigroup’s Jane Fraser was appointed the first chief executive of a big Wall Street bank last year, it was seen as a cause for celebration in the sector.
But according to a new report from Moody’s, women still face a rigid “glass ceiling” when moving up the ranks at banks. Many women are scoring entry-level banking jobs, but that representation “does not yet translate evenly to executive and board ranks”, Moody’s said.
Women are more likely to hold staff roles on corporate support positions in human resources, legal or accounting, added Moody’s. Money-making roles “are still mostly held by men” and it is these roles that launched people into the C-suite, said Moody’s.
Additionally, very few banks published gender-related diversity and inclusion procedures, Moody’s said. Out of 72 banks studied, almost none “disclose clear plans to increase board diversity”. it revealed. (Patrick Temple-West)
Grit in the oyster: Private equity firms fail to promote sustainability at portfolio companies
The world’s largest private equity firms are facing mounting pressure to prioritise environmental, social and governance (ESG) issues at their own firms. Many pension funds, foundations and other limited partners are now demanding PE firms take ESG seriously.
But there is a gap between the sustainability commitments the PE firms are loudly trumpeting and what they are asking from portfolio companies, according to new research.
In a survey of almost 200 private-equity portfolio company executives, only 44 per cent said their team had embraced ESG, according to a report from Russell Reynolds Associates, a consultancy. This contrasts with public company executives, two-thirds of whom said they were focused on ESG.
The gap “suggests that good intentions are not yet translating into action for portfolio companies”, Russell Reynolds said. “PE-backed portfolio companies do not appear to be making consistent progress toward sustainability goals.”
Only a fifth of the executives at PE-backed companies said they were involved in internal efforts to examine their organisation’s environmental or social impact.
With regulatory and financial markets pressuring businesses on ESG, PE firms could no longer dismiss the issue, said Kurt Harrison, a partner at Russell Reynolds.
Nowadays, PE firms could not exit via an initial public offering without credible ESG measurement and reporting policies, he said. “It is as much a commercial imperative as it is the right thing to do.”
Chart of the day
How do ESG funds align with the UN Sustainable Development Goals? There is “little consensus about what sustainable actually means or how it should be measured”, according to Util, an AI-based ESG rater. However, sustainable US funds score positively against 12 SDGs and negatively against five SDGs, according to Util’s latest report. Also of note: sustainable funds were found to tilt towards female-led businesses and have a social and environmental lens. However, they still underperformed on SDG 5 (gender equality) and SDG 7 (partnership for goals).
The costs of switching to a low-carbon economy were far less than the “particularly challenging” impact of climate change on the region’s companies, the European Central Bank reported this week, pointing to Europe’s summer floods and wildfires as just the latest example. In its worst-case scenario — in which no action is taken — global warming could knock 10 per cent off European gross domestic product and cause a 30 per cent rise in defaults on corporate loans to the most exposed companies. The FT’s Martin Arnold has the details on the three scenarios that the ECB modelled.
The gender pay gap among MBA graduates has almost halved in the past four years, but men still earn 20 per cent more on average, according to a new report. Men were earning on average $177,112, compared with $147,412 for women, according to the research, which was conducted in 2020 by the Forté Foundation, a consortium of businesses and universities created to tackle gender imbalances.
For four years, the British Academy has hosted one of the most ambitious efforts to rethink the role of business in society. This week, its final report set out the policy changes and new practices it argues are needed. You can catch the discussion at its launch event between the likes of Calpers’ Anne Simpson and Oxford Saïd’s Colin Mayer here.
UK companies urged to improve long-term viability disclosures to investors (FT)
Costs of climate change far greater than green transition, says ECB (FT)
Wind power: not such a breeze for investors (FT)
10 Open Questions For The 40 Trillion-Dollar ESG Industry (Forbes)
U.K. Debt Chief Embraces More Green Funding After Cutting Costs (Bloomberg)
Heroic Accounting (Stanford Social Innovation Review)
Business News Governmental News Finance News
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