Zero FTX given

20 Nov 2022 | Regulation tailwinds. COP27 divisions. Decarbonisation questions. Plus, where does the crypto crisis leave ESG?

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📜 On both sides of the pond, financial regulators have been occupied with ESG-related rules. (Not much else to be getting on with.) Soon after the FCA published its well-received consultation on UK Sustainability Disclosure Requirements—which aims to build and improve on SFDR, with better investment criteria and fund labels—the EU adopted its long-awaited Corporate Sustainability Reporting Directive (CSRD), which applies to all European companies from 2024 onwards. European watchdogs, attentive to the recent raft of Article 9 downgrades, launched a ‘Call for Evidence’ to gauge the scale of greenwashing in the financial industry, while providing taxonomy clarity of sorts. In the US: Having reopened the comment period for amendments to its Names Rule, a busy SEC announced “the most important sustainability rule you’ve never heard of,” requiring mutual funds to provide more detail about their proxy votes in line with ESG categories. Meanwhile, the emboldened US government isn’t waiting for SEC disclosures. The new Federal Supplier Climate Risks and Resilience Rule makes them mandatory for all government contractors.

🗺️ Regulation is symptomatic of a political landscape that has grown—suddenly, tentatively, relatively—favourable. Unexpected power shifts in Washington and Westminster have improved regional green policy prospects. Luiz Inácio Lula da Silva’s election victory prompted a global sigh of relief for (and sponsored by) Brazil’s Amazon rainforest. Even deteriorating China-US relations were alleviated this week, when presidents Biden and Xi agreed to cooperate on climate change. Their meeting boosted morale at a stagnant COP27, where international relations look less rosy. ‘Loss and damage’ has been the central theme of the conference, with developed nations under pressure to mobilise trillions in public and private capital toward the economies worst hit by a climate disaster for which they bear least responsibility. On Thursday, UN Secretary General António Guterres warned of a “breakdown between North and South” after financing discussions hit deadlock. Friday’s heavily criticised draft deal was absent funding details. Then came the EU's dramatic U-turn. With 1.5°C in doubt, will it be enough?

🔋 Decarbonisation: No longer ‘if’, but of ‘when’, ‘how’, and ‘where’. Besides financing, the contentious debate of COP27 asks whether the restriction on coal should be extended to all fossil fuels. The EU and India are in favour. Not so African countries, which defend their right to exploit gas reserves. (Understandable, after two weeks in the company of commitment-phobic economic powerhouses that owe their strength to the stuff.) More to the point, says Goldman Sachs: Though renewable funding has taken a lead, short-term underinvestment in gas will increase energy prices and coal consumption. Hope rests in public-private partnerships, such as the Energy Transition Accelerator unveiled by US climate envoy John Kerry. A case study in their efficacy, the Inflation Reduction Act is attracting billions to clean energy and battery storage. Cue fast-tracked permits not just for renewable projects, as the EU recently mandated, but also mining exploration. In anticipation of the controversial sector stepping onto a bigger world stage, the IEA released a Critical Minerals Policy Tracker to enhance scrutiny of its regulatory framework.

Story of the week: Zero FTX given

General rule of thumb: Don’t lie about financial products.

To an extent, the substance of the product doesn’t matter. Neither Crispin Odey nor any one of the BAD- or Vice-like funds, explicit in their anti-ESG objectives, suffers the vitriol faced by funds claiming goodness or greenness, only to be unmasked.

Just be honest about it.

The colossal consequences of deception are, unsurprisingly, commensurate with its financial value. In 2008, it wasn’t credit ratings that sunk the reputation of banks: It was credit ratings squared, backed and collateralised. The subsequent crisis of faith rivalled the immediate financial impact, shaping a decade of political polarisation and generational psychology.

Back in May, we talked about the distrust in the context of crypto. Humans don’t need a good reason to bet on speculative assets, nor a charitable ex-post justification, but here it comes: One of the core tenets underpinning crypto culture (anti-regulation, anti-risk management) is symptomatic of distrust in the financial establishment, which is, to some degree, a hangover from 2008.

Takeaway #1: For an ESG industry in the throes of a still-resolvable trust crisis, the crypto complex—generally speaking—is an example of what could happen if certain mistruths are allowed to proliferate.

There’s an existential risk in selling ESG (risk management) as something it’s not (impact). It’s bad for impact providers, it’s bad for ESG providers, and, by extension, it’s bad for the people, companies, and countries who would, otherwise, benefit from genuine ESG or genuine impact. As we wrote then:

Today’s [crypto] market is very different from the decentralised, democratised image it projects. With just a handful of people and centralised exchanges pulling the strings and evading accountability, it’s the type of market begging for risk oversight.


Crypto culture is vehemently anti regulation and anti risk management. Unfortunately, one result is there’s little by way of a) scrutiny to prevent the type of apocalyptic crash that hit Terra Luna this month, and b) safety net to protect those left holding the bag.

If there are more Terra Lunas—and judging by the transparency of certain exchanges and their supposed reserves, it’s only a matter of time—[the distrust death spiral] could have multi-billion dollar ramifications.

Which brings us to Takeway #2: The crypto crash is an example of what is happening because certain mistruths are allowed to proliferate.

Affected altruism

There is such thing as too much honesty. Still, it makes for great entertainment.

Having brought down the crypto house of cards last week, FTX CEO Sam Bankman-Fried (SBF) decided, belatedly and against all possible legal counsel, to share his reflections in the public square.

In a Twitter interview with Vox, the self-described “effective altruist” (and de facto flag-flyer for both social impact and crypto regulation) aired his real feelings about ESG (“perverted beyond recognition”), regulation, and ethics and PR.

  • On regulation (specifically, his own, prior, pro-regulation statements): “[It’s] just PR. There’s nobody out there making sure good things happen and bad things don’t. F—k regulators. They make everything worse. They don’t protect customers at all. [Consumer protection would be good], but regulators can’t do it.”
  • On ethics and PR (specifically, his own, prior, pro-ethics statements): “All the dumb s—t I said. It’s not true, not really. Everyone goes around pretending perception reflects reality. It doesn’t. I had to be [good at talking about ethics]. It’s what reputations are made of. [It’s] this dumb game we woke Westerners play where we say the right [things] and so everyone likes us.”

Radical honesty might not save SBF (or the lawyers representing him), but for sustainable investors to have on record what so many business leaders think and yet would never say out loud? Invaluable.

Statements about company purpose or ethics are PR. PR is an unreliable proxy for ESG-as-risk and ESG-as-impact. If there were ever a moment to reevaluate its place in traditional sustainability ratings and analysis, this is it.

Regulation will make certain disclosures easier to digest but not necessarily to trust, particularly where metric- or data-free. Both regulators and companies are responding to growing financial interest in sustainability. The difference is that one is reactive, the other, proactive. The more material a corporate disclosure, the greater the pressure on regulators to respond, sure—but equally, the greater the incentive for company management to preempt perceptions of any disclosure. Regulatory frameworks are broad and developments slow. Investor relations have the upper hand.

One misinformed rating is a funny meme. Lots of misinformed ratings—bundled and sold as a financial product, let alone bundled and sold as an index on top of which other products are bundled and sold—is an existential risk to sustainable finance.

Even as it it highlights flaws in traditional measurement methods, the failure of FTX and the broader crypto ecosystem underscores why sustainability matters. In 2008, credit ratings were accused of lacking rigour, accountability and transparency. ESG ratings need not provoke a similar crisis of confidence today.