The next phase of ESG and Moral Money

Greetings from Cambridge where I have just arrived after being admitted this week as the 45th provost of King’s College at Cambridge university.

A programming note to start: while I will still periodically contribute to Moral Money (and will still be writing a regular Friday op-ed for the FT), the day-to-day running of the newsletter now sits with its editor Simon Mundy. He’ll be supported by Patrick Temple-West, Kenza Bryan, Emily Goldberg and Nikkei’s Kaori Yoshida — as well as a new reporter to be hired soon (full details of that job opportunity are here). Emiliya Mychasuk, the FT’s climate editor, Attracta Mooney, the climate correspondent, and Aime Williams, the Washington-based climate reporter, are also collaborating closely. It’s a great team!

Today I share some thoughts on what I have learnt about ESG since we launched this newsletter in 2019. Let me know if you agree. And in the meantime, thank you for your support in recent years. I am certainly not disappearing from the sustainability world, but will now be exploring this debate in a wider forum that includes the FT, Cambridge and the policymaking community. — Gillian Tett

Not so niche

We launched Moral Money in 2019 because we thought that sustainability could — and should — move out of the “shadows” of niche publications and away from the back page of mainstream media. Our hunch turned out to be correct: in the past four years, ESG-related topics have leapt on to the corporate and policymaking radar, and our readership has surged.

There have been several phases of this growth. In 2019, Moral Money readers wanted to understand the “why” of ESG. In 2020, as these ideas went mainstream, there was more demand for the “how”. So we reported on the struggle to create credible ratings, accounting frameworks, talent pipelines and so on. This tale continues since, as we have noted many times, ESG frameworks are still immature and imperfect. That is typical of the early stage of any financial innovation.

This year, however, the focus has shifted again: ESG has been weaponised. That is partly down to rising energy costs after Russia’s invasion of Ukraine. It also reflects a rightwing hunt for political weapons to use against the left. Thus in America, fossil fuel companies and other Republican donors have funded campaigns to advance state-level bills to curb ESG investing. In Europe, Rishi Sunak, the UK premier, has rolled back previous green pledges, and in places like the Netherlands there is active resistance against ESG ideals. Some green activists view the decision to stage COP28 in the United Arab Emirates — where 30 per cent of the nation’s GDP comes from the oil and gas sector — as backsliding too.

This backlash is depressing, since the scientists who I have met at Cambridge university all tell me that it will be very difficult to keep global warming below 2 degrees in the coming years, never mind 1.5 degrees (the level that might avoid potentially disastrous impacts). What makes it doubly alarming is that back in 2019 I hoped that climate change might force higher levels of global collaboration — but now it is creating equal strife. A blame game is under way between the “Global South” and “Global North” about the latter’s emissions. There is also rising competition between countries to secure the critical minerals needed for a green transition and to dominate the key technologies too.

Some voices are trying to counter this. This week at Cambridge I met Andrew Forrest (aka Twiggy), the chief executive of Australian mining group Fortescue, who has been touring European universities. He is seeking to build public support for a campaign to stop climate change by illuminating the threat of deadly humidity. He is also appealing for countries such as China and the US to remove all tariffs on the trade in green minerals and tech. The IMF agrees: its new World Economic Outlook calls for the creation of a tariff-free “green corridor” in global supply chains to enable a more co-ordinated fight against climate change. But don’t hold your breath; this will not happen soon. “It’s an area of geopolitical competition now,” one global leader tells me. Alas.

Reasons for optimism

Even amid this gloom, four factors still give me cheer. One is that even though rightwing voices love to bash ESG, few have laid out a coherent competing philosophy — or called explicitly for a return to the shareholder-only mantra of Milton Friedman. I think this is because even rightwing commentators know that it is unrealistic to expect businesses to ignore the social, political and environmental context in which they operate.

After all, companies have been repeatedly wrongfooted by issues that historically have not been top mind for executives. These include medical risks (pandemics), social tensions (strikes), misconduct scandals (such as #MeToo issues) and geopolitical fracture (war). If Friedman were alive today, I suspect he would argue that companies should watch stakeholders too, to protect shareholders’ interests.

Second, when I have talked to company executives recently, I’ve found scant evidence they are reversing their previous ESG plans. Maybe that is because these plans were always vague; “greenwashing” is an issue. However, I suspect that “green-hushing” is at work today too: companies in the US are reluctant to talk about their ESG agendas — even if they are adopting one — because they want to avoid rightwing attacks.

Either way, global companies seem to be realising that it is more costly to ignore ESG norms than adopt them. To understand why, consider events in California. Its legislature recently backed a bill that will require all large businesses which operate in the state to provide Scope 3 reporting by 2027. Many executives might hate this. But few global entities can afford to stay out of the state. So most will probably comply and impose it across the company, to avoid running different accounts in different regions — no matter what Washington (or West Virginia) says.

A third factor is that an investment and innovation boom has emerged in green energy — on a scale that was unimaginable four years ago. You can see this with the frenzy around America’s Inflation Reduction Act, or the fact that figures such as Mark Carney, former Bank of England governor, reckons that there will be $1.8tn green investment this year, a multiple of what was available when Moral Money started.

However, the boom is also around me in Cambridge: the university (like others of its ilk) is teeming with green research projects, be that efforts to cut energy usage by the aviation sector, plant more urban gardens, preserve biodiversity, use artificial intelligence tools to track emissions and so on. Meanwhile, Kings will install solar panels on the roof of its historic chapel next week, and has rewilded part of its equally famous lawns.

That, in turn, highlights a fourth reason for cautious optimism: the younger generation is passionate about green reforms. I hear this in the chatter among Cambridge students. But for a macro-level view, look at a survey released this week by the Newgate public relations firm. A poll of 12,000 people in 12 countries found “a significant increase in both awareness of (53 per cent aware, up from 46 per cent last year) and interest in ESG issues, with 67 per cent rating their interest at 7 or more out of 10, up 11 per cent since 2022”. This is “impacting people’s decisions in a range of areas — like the type of food they eat and products they buy”.

Public awareness around that ESG term varies between countries, with the UK at the low end of the scale, while places such as the UAE or Singapore are near the top. But one common theme is that millennials and Gen-Z are far more aware of the climate issues than their parents and grandparents. In that sense, then, I am thrilled to be in Cambridge; the passion of the kids may offer the best hope for our future. (Gillian Tett)

Pesticides case in France to settle long-running dispute pitting Nicaraguans against US companies

In recent years, activists have tried to take companies to court to hold them responsible for global warming. There was the Royal Dutch Shell verdict in 2021 that ordered the company to increase its emissions cuts. Last month in Europe’s top human rights court, Portuguese youngsters accused governments of failing to address climate change.

But a different type of environmental battle took place on Tuesday in France’s Cour de Cassation — the country’s supreme court.

For decades, Nicaraguan banana farmers have been trying to win compensation from the US manufacturers of Nemagon, a pesticide that sterilised workers. More than 1,000 people were awarded $884mn by Nicaraguan courts, but the funds have not been paid.

Under French law, people can fight for enforcement of a foreign judgment, under a legal process known as “exequatur.”

The case against Dow Chemical and other companies first went to a French appeals court in 2018. That court ruled for the defendants in May 2022, prompting the supreme court appeal.

François-Henri Briard, the lead attorney for the Nicaraguans, told me the court is expected to rule on November 23, and that 11 of the court’s justices sat for the oral arguments this week — more than typically appear for cases. “That does not happen very often,” he said. 

If the Nicaraguans win on appeal, the supreme court is likely to return the case to the appeals court for a rehearing, Briard said. Dow, however, said it believes the previous rulings in France show the allegations violated the law, and called the Nicaraguan court rulings “fraudulent.”

“France is not alone: Courts in every country, after two decades of litigation, agree that the fraudulent judgments are not enforceable,” Dow spokeswoman Mary Fournier said in a statement.

Big companies are by nature international organisations. Courts tend to be regional and rulings in one country do not necessarily apply across borders. But the Nicaraguans’ case in Paris will be closely watched to see if other aggrieved parties can win financial compensation from multinational companies. (Patrick Temple-West)

Smart read

Want a reason to feel cheery about ESG? Don’t take it from us; look at the FT’s Alphaville blog, which is (in) famously cynical and profit-focused on markets. A smart, recent note suggests that the death of ESG has been overstated.