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A Week in Impact: Imagining a future without ESG

Another week, another assertion that ESG is completely, absolutely, entirely mainstream. Can that claim weather a recession? And what lies ahead for fossil fuel companies?

IMAGINING A WORLD WITHOUT ESG

Another week, another assertion that ESG is now “absolutely, completely, [entirely, categorically, undeniably] mainstream.”

As ESG has taken over, its scope of influence has widened beyond equity investing: factors such as carbon emissions and human rights are now criteria on which credit issuers are assessed, too. Focusing on the final bastion—sovereign debt—the FT notes that “greater social awareness, gender equality and climate activism” among investors has put more pressure on sovereign issuers, as well as on governments to issue more green bonds.

So ubiquitous is ESG that it has even become a mainstay in business schools. In a powerful symbol of a bigger paradigm shift, “ESG is just business now,” with “corporate leaders—and business school experts—now seeing ESG as a basic risk management concept.” In fact, universities are already thinking about a future in which sustainability courses are redundant, because “ESG and impact is incorporated into every aspect of the investing process and corporate strategies.”

Is that realistic? A cynic might say ESG is a bull market phenomenon. And, as fears of a recession continue to grow, projections for the nascent industry are split: some believe a decline in asset prices will hurt the ESG landscape, while others believe “ESG will gain added value for investors because it enables them to diversify.”

On the other hand, it’s not as if climate change cares about the state of the economy—as insurers are quickly realising.

FOSSIL FUELS GO ON TRIAL

Defending fossil fuel companies has never been easy, but perhaps never more so than now.

The FT recently launched a sustainability campaign and the Guardian has taken a stand against fossil fuels, rightly noting there’s only so much individuals can do to combat climate change. While investors have an important role to play, their track record isn’t great: just this month, the paper revealed that the largest three asset managers not only oversee a huge and growing number of oil, gas and mining shares but have also abstained from an overwhelming number of climate-related motions.  

As the fight against fossil fuels goes nuclear, it’s been escalated to governments and courtrooms. New York’s lawsuit against Exxon began this week: as the New York Times reports, Exxon “faces charges that the company lied to shareholders and to the public about the costs and consequences of climate change.” Meanwhile, in the UK, one initiative is proving that there is still room for cross-party collaboration: 300 MPs have demanded that the parliamentary pension fund be divested from fossil fuels.

Like ESG integration, the rejection of fossil fuels isn’t a temporary trend. And it’s only going to intensify. Attribution science—the new science that links weather events to emissions and the companies responsible—is prompting a further string of lawsuits and making it increasingly difficult for firms to spin their way out of controversies.

Is this the end of the road for fossil fuels, then? Attribution science academic Richard Heede thinks it could be, but cautions that "circumstances demand more heroism from the lawyers, the youth, the judges.”

And from the investors.