ESG and the war: what the pundits say
Black mark
“A day after Russian tanks moved into Ukraine”, the world’s largest asset manager, BlackRock, which manages $10trn in funds, upped its stake in the Russian goldminer Polymetal, said Tom Howard in The Times. It seemed a strange move for a financial behemoth whose CEO, Larry Fink, has sought “to place himself at the vanguard of responsible capitalism”. BlackRock has since backtracked and suspended the purchase of all Russian securities in its active and index funds. But the incident served to highlight the knotty problems the war has presented so-called ethical funds whose investment picks are guided by environmental, social or governance (ESG) criteria.
Childishly binary
“While busily ticking boxes on climate and governance, these fund managers somehow missed Putin’s invasion of Georgia in 2008 and his annexation of Crimea in 2014,” said Oliver Shah in The Sunday Times. “Russia was deemed fine by the clipboard wielders”, until “overnight it became not fine”. Plenty of them are now piling into China instead. But the childishly “binary nature of the ESG debate” – “missiles are bad, peace is good. Coal is bad, wind is good” – has been exposed by the Ukraine war. It’s time we replaced the “inflexible dogma” of ESG for something more nuanced. I’d suggest CDP – “common sense, decency and pragmatism”.
Shifting ethics
Can defence stocks now be considered ESG, asked Merryn Somerset Webb in the FT. It’s a moot point. The sector has long been “a no-no for full-on ESG funds”, and trades at a hefty discount to the MSCI index of global shares. But as the Latvian deputy PM Artis Pabriks said last year: “Is national defence not ethical?” The sticky issue is that most defence groups “serve both dictators and underdogs”. ESG fund managers are adept at reclassifying stocks that are going up “from iffy to completely fine”. They’ll find a way now. But in the end you don’t need an ESG fund manager to invest sustainably in businesses that offer something to society. You just want an “unconstrained” active manager, who recognises that clients “want to be good to the planet and to the people on it, but who also remembers the 1970s and buys you a hefty position in real assets”.