Sat. May 28th, 2022

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One thing to start: Greetings from (almost) Washington, where I am headed this week for the spring meeting of the IMF and World Bank, and a CFA conference on ESG that is happening on the sidelines. Russia’s invasion of Ukraine will be a leading topic for debate at these meetings; so will the question of whether the war has derailed the sustainability movement, given the new focus on energy security.

The FT editorial board took a strong stance on the issue last week, arguing that the war creates more – not less – need for green energy now. Paul Polman and Andrew Winston also hit back against ESG critics in the Harvard Business Review with a powerful five-point riposte about why sustainability is still a critical part of business that leaders ignore at their peril. Check it out here.

But the backlash against ESG – and backlash against the backlash – is likely to keep swelling, in my view. And the Securities and Exchange Commission’s efforts to craft climate disclosure rules are becoming one flash point. Republicans are lobbying furiously to water down the rules. Check out what Moral Money readers think about this below. Also take a look at some research that the historian Doug Brinkley is doing to put this battle in a historical context. Read on. (Gillian Tett)

Join Gillian Tett on May 7 at the FT’s inaugural US edition of the FTWeekend Festival, featuring leading luminaries including Henry Kissinger, Chimamanda Ngozi Adichie, William J Burns, Tina Brown and Jennifer Egan. Claim 50 per cent off your pass using our exclusive newsletter discount code FTNewslettersxFTWF22.

Climate disclosure rules: Moral Money readers have their say

The US Securities and Exchange Commission’s push for new corporate climate disclosure rules has proved fiercely divisive in Congress, drawing stiff opposition from Republican lawmakers and the maverick Democrat senator Joe Manchin. But when we invited Moral Money readers to share their views, they proved overwhelmingly in favor of tough new disclosure standards – while also urging regulators to aim higher in some areas.

“Investors are the ones who choose what risks to take,” wrote Julie Gorte, a vice president at Impax Asset Management, voicing support for the SEC’s proposals. “In order to understand those risks and price them fairly, we need information.”

You were ruthless in your dismissals of the SEC’s Republican critics.

“Those whingeing politicians need to realize that politics is risk management writ large, and that they have dropped the ball,” wrote Mike Clark, founder of Ario Advisory. “The excellent SEC is helping to fill the gap risk management void they have left.”

“Republicans’ knee-jerk criticism of any regulatory change that does not directly pour public money into the pockets of their donors should be ignored,” added reader Mark Shumway, adding that companies with poor climate-related disclosure were likely to suffer lower valuations, in the absence of mandatory standards.

“Every field of business will have its category of climate-stranded assets,” wrote Jonathan Rose, founder of the eponymous New York-based property company, pointing to the rising risk of “unsellable” buildings. “Investors deserve insight into this.” He further urged regulators to help shed light on complex systemic risks that will emerge as a huge range of interdependent business sectors simultaneously decarbonise while combating physical climate impacts.

The SEC must do more to provide a clear and appropriate verdict on which climate-related risks will be considered material, and therefore subject to mandatory disclosure, wrote Peter Bakker, president of the World Business Council for Sustainable Development. Bakker praised the SEC for gradually phasing in its disclosure requirements, saying this demonstrated its understanding of the “state of the business”. But he urged US regulators to harmonize their rules with emerging global standards such as those from the new International Sustainability Standards Board.

Across the Atlantic, European regulators have made more progress in this area, with a welter of new disclosure rules for companies and investors. But while the first reports under this regime have started to appear, not everyone has been impressed by their impact.

“I have not seen any market participant admitting how great the new information is and how much it is bringing added value to investors,” wrote Santeri Suominen, a capital markets and sustainable finance lawyer at the Confederation of Finnish Industries.

He argued that the EU rules for corporations had strayed beyond the original aim, instead seeking to “redefine how companies operate their business”. “This regulatory tsunami is likely to fail to meet its objectives,” Suominen warned.

If you have more to add to this debate – or to another of the heated contests within the sustainability space – you know where to find us: As ever, we look forward to hearing from you. (Simon Mundy)

Back to the future (or not)?

When environmentalists discuss green issues today, they often look to the future. No wonder: the question of whether we can collectively keep global warming below 1.5C in the coming years will be critical for the future of the planet, as the latest report from the IPCC shows.

But sometimes it pays to look back too. And that is exactly what Doug Brinkley, a professor of history at Rice University – and official historian at New York’s historical society – is doing. A few years ago he published an award-winning book on the environmental and social issues around Hurricane Katrina. Later this fall, he has a book out on the 1960s environmental revolution in America called Silent Spring Revolution: John F. Kennedy, Rachel Carson, Lyndon Johnson, and the Great Environmental Awakening.

This period of time is worth pondering because it holds lessons for the administration of Joe Biden in Washington today. Back in the 1960s, as Brinkley explained to me during a recent panel debate at the Historical Society, the activist Rachel Carson played a crucial role in sparking the environmental protection movement since she was a very powerful communicator – much in the mold of Greta Thunberg today (albeit without Instagram). Her power arose partly because she seemed so soft-spoken and mild.

However, she also enjoyed the backing of some key politicians such as Kennedy. And back then protecting the environment was not seen purely as a partisan affair; Republicans were engaged too. Another striking detail is that the movement received heavy support from the unions, while business was largely on the sidelines – a pattern that is partly reversed today.

But with the onset of the Vietnam war, energy crises and sky-high inflation, this burst of environmental passion died down in subsequent decades. Carson’s Silent Spring changed the debate for a while, but not in a permanent way.

So what are the lessons for today? One is that it is short-sighted to assume that Republicans cannot contribute to the environmental fight, given the bipartisan action in the 1960s. Yes, the phrase “climate change” is polarizing now. And, yes, the oil and gas sector (which tends to be allied with Republicans) often fights back. But words such as “stewardship” or “environmental protection” resonate with Republicans and evangelicals. And, as Brinkley pointed out, the majority of natural landscapes (such as national parks) that environmentalists protected then sit in red – not blue – voting regions.

The second point is that it would pay for modern environmentalists to do more to get the labor movement involved in the green battles. This can be hard today since some green reforms (such as shutting coal mines) can cost jobs. But labor could – and should – be more integrated today.

The third lesson from history, however, is that it is dangerous for activists to sit on their laurels – or over-reach too hastily or aggressively. When Carson’s Silent Spring campaign gathered pace, parts of the environmental movement became so hostile towards the establishment that they alienated mainstream supporters. That robbed the green movement of potential allies when corporate interests fought back, and the public mood changed in the face of rising inflation. Today’s ESG activists should take note: it pays to build coalitions. Particularly at a time when war and energy shocks are creating a new wave of inflation – and some investors are muttering about green bubbles in asset prices. (Gillian Tett)

Smart Read

  • Want to feel a tiny bit more cheerful about humanity and tech progress? Check out this unusual piece at The Conversation about. . . is. . . fish. Nicholas Sullivan, a researcher at Tufts University, has written a fascinating new book which argues that information technology could potentially make commercial fishing less destructive and wasteful in the coming years. And, if nothing else, it is an interesting development for investors to ponder.

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