ESG, sustainability, impact, climate – whichever focus suits you – the Inflation Reduction Act probably feels like a big win.
But a lasting victory tends to produce short-lived celebrations. Two minutes into this week’s party, the first “yes, but” calls amid cheers remind us (rightly) that we’re dancing on the brink of an extreme extinction. One of the strongest “yes, buts” in private sector sustainability is the mismatch between the story an organization tells its stakeholders and what its lobbyists and trade groups tell elected officials.
Take Big Tech, which has now acquired the awkward MAMAA moniker. These companies are positioned as ESG darlings in public discourse and investment fund holdings alike. Running data centers on carbon-free energy 24/7 by 2030 is ambitious, good for the climate and good for business – an archetypal sustainability win. But consider Big Tech’s paltry 4 percent annual spending on federal climate policy lobbying, and the aura of ambition fades.
The same applies to finance, and maybe even more. “Engagement” is recognized in the investment industry as a – if not the – key strategy to get to net zero. Consider, for example, BlackRock CEO Larry Fink’s 2022 Letter to CEOs, where he clearly focused on the company’s growing Investment Stewardship team.
But while sustainability-minded investors such as Green Century, Trillium and Walden have been strong and consistent in pushing portfolio companies for ESG performance, the majority of large companies “said to engage they are, but it’s a great conversation, because they don’t have a path forward,” As You Sow CEO Andrew Behar said.
Much attention is paid to the engagement of institutional investors in portfolio companies on ESG issues. But in such a dynamic regulatory and policy environment for sustainable finance, there is surprisingly little focus on self-engagement among investors.
There is more attention being paid to what is being said from both sides of the mouth of financial services companies about ESG development in portfolios and in policy.
Climate change think tank InfluenceMap has developed the “most comprehensive analysis of how the financial sector influences climate-related financial policy.” I looked at the organization’s Sustainable Finance Policy Engagement platform to better understand how the world’s largest financial institution is influencing the adoption of sustainable finance policies.
The world is not so black and white, but dividing the leaders from the laggards can be a helpful heuristic. Here are some takes on what the best and worst practices look like.
Leaders
Multinational insurance company Aviva took the top spot on the InfluenceMap list, with a grade of B. Aviva Investors, the company’s asset management arm, led most of the company’s policy engagement.
A financial company that can trace its roots back to the 17th century does not seem like the most likely candidate to call for major reforms of the system. But Aviva, as InfluenceMap points out, is almost alone in its assertion that “the way money flows through the capital markets today is a product of evolution – not design … .”
In engaging with the Paris Agreement-aligned climate policy, Aviva checks the boxes you want to see from a sustainable finance leader.
The company pushed for the integration of the recommendations of the Task Force on Climate-related Financial Disclosures in the policy of the European Union and supported the mandatory implementation of the TCFD by the G7. It also pushes governments to ask companies to disclose their action plans to align their business strategies and climate goals, and early to express its support for the EU taxonomy, pushing further for the taxonomy to include environmentally harmful business activities in addition to sustainable ones. .
The list of supported activities is too long to enumerate in full, but Steve Waygood, chief investment officer of Aviva Investors, sums up its position well: “The financial services industry is failing. It’s clearly influential; we need to use that influence for macro-stewardship, not just micro-stewardship of individual companies.” A good example of macro-stewardship is Aviva’s advocacy to mandate net-zero targets for central banks.
Of particular note, too, Aviva is an active supporter of a fundamental change that many in the institutional investor universe are reluctant to touch: The fiduciary duty to act in the best financial interests of those client must include ESG issues.
Laggards
The lowest grade – a D – was given to Ameriprise Financial, indicating limited and, if used, mixed engagement.
While the company recognizes the risk of climate change in the financial system, it has shown no interest or support for reform. Columbia Threadneedle, the asset management arm of Ameriprise, opposed the EU’s sustainable financial action plan, stressing that policy of this nature should deal with the operations of the real economy and not focus on finance, and that such a taxonomy creates more confusion than solutions.
As such, Columbia Threadneedle provided vocal support last year for the Biden administration’s focus on sustainable finance, saying, “It’s time for the US to play” on ESG policy.
One thing shared by all D and D-plus grade recipients is the lack of detail about the policymakers’ negotiation strategy and, importantly, the lack of disclosed membership in influential trade associations (especially already those known to regularly lobby against climate legislation). Or, if the members are known, some details are given about the kind of indirect influence on management that these roles have.
The important takeaway at both ends of the leader-laggard spectrum is – as with many sustainability transitions – about increased stakeholder awareness and expectations. The role of finance in realizing the transition to a clean economy has become clearer to stakeholders such as customers and employees, and more attention will be paid to what is said from both sides of the mouth. of financial services companies regarding ESG development in portfolios. and the policy.
Not every industry has an advocacy group like ClimateVoice, but as seen in the last few years, amid the growth of ambition from policymakers to create a climate-related financial policy, the contributions or opposition to progress on that front by investors and lenders will come. closer under the microscope. The perception that finance is pumping greenwash has risen, and further scrutiny by organizations like InfluenceMap will only heighten them.