![]() For years, many banks and investors across Europe have refused to back defence companies, as it goes against their ESG policies. “These are not new topics, but they have been put into the spotlight because of these events.”ĭefence presents one of the most immediate challenges. She points to three core areas - defence, energy and sovereign risk - where the shift has been most pronounced. “It might not be the last time we have to reconsider the framework of what makes a sustainable investment.” The war in Ukraine ought to be considered “an evolution for ESG rather than muddying the waters,” said Sonja Laud, chief investment officer at Legal & General Investment Management (Holdings) Ltd. ![]() If this is a transformational moment for the investment landscape, some say it is also an opportunity to redefine what it means to invest sustainably. The Estonian headquarters of the Swedish bank Skandinaviska Enskilda Banken AB in Tallinn, Estonia. “The acronym ESG is a bit of a confused compact because it muddies at least two things,” said Ian Simm, founder and chief executive of 37-billion-pound asset manager Impax Asset Management Group PLC, a pioneer in sustainable development. Some people wonder whether the term still has any meaning at all. “This conflict is forcing the questions: what is ESG investing? Does it really work? And can we afford it?” “The war in Ukraine is an incredible challenge for the world of ESG,” said Hubert Keller, managing partner at Lombard Odier Group. For example, governments in Europe are reneging on environmental goals by turning to fossil fuels to reduce dependence on Russian gas in order to fulfil ethical goals. On top of the allegations of greenwashing at the industry’s highest levels, there is the impact of Russia’s invasion of Ukraine, which is forcing companies, investors and governments to wrestle with developments that at times appear to pit the E, the S and the G against one another. “I still believe in sustainable investing, but the bureaucrats and marketers took over ESG and now it’s been diluted to a state of meaninglessness.” It’s a “real wake-up call,” said Desiree Fixler, the former DWS executive who blew the whistle on her company for allegedly making misleading statements about ESG investing in its 2020 annual report (DWS denies wrongdoing). It was the first time that an asset manager had been raided in an ESG investigation and signals a moment of reckoning for the industry. Those criticisms came into sharp focus on May 31, when German police raided the offices of asset manager DWS Group and its majority owner, Deutsche Bank AG, as part of a probe into allegations of greenwashing. īut there’s a fine line between flexibility and ambiguity, and ESG’s critics say some companies and investors are using the loosely defined term to “greenwash,” or make unrealistic or misleading claims, especially about their environmental credentials. ![]() ![]() This flexibility can be a positive thing, allowing such funds to “collectively appeal to a broad range of investors and stakeholders,” wrote Elizabeth Pollman, a professor at the University of Pennsylvania Carey Law School, in a paper titled The Origins and Consequences of the ESG Moniker. The term has become an increasingly broad catch-all for a range of approaches to investment: everything from negative screening (removing sectors such as tobacco or defence) to positive screening (picking sectors like clean energy), to really any kind of strategy that promises to bring about positive social or environmental change. Assets in ESG funds grew 53 per cent year on year to US$2.7 trillion in 2021, according to data provider Morningstar Inc., amid a gold rush by asset managers to tap into rising investor demand by rebranding their funds as sustainable or launching new ones. Investing within an ESG framework is now the fastest-growing segment of the asset management industry. ![]() This advertisement has not loaded yet, but your article continues below. ![]()
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