This month, I took on the awesome task of being GreenBiz's first Green Finance & ESG Analyst and the chair of our annual GreenFin conference. After three years with GreenBiz, I'm thrilled to be taking the reins of this outstanding event and community.
From those of you whose work I’ve been following, and those I’ve had the pleasure of meeting, I see a group with a passionate sense of the potential. We are at a critical moment in the history of this planet and if you work in ESG, my guess is that you see the opportunity to meaningfully contribute to the course correction our financial system and planetary boundaries call for. I look forward to supporting and serving you in this quest.
I’m relatively new to ESG and sustainable finance, but so, it seems, are many of you. While I’ve been following these topics and trends for a while, I recently took a learning journey — some virtual and some masked meetups — through the ESG and sustainable finance landscape. I talked with a score of our key advisers and partners to learn what, following what GreenBiz Chairman Joel Makower recently described as the "climate finance week when everything changed," is keeping them up at night — excitement, dread or otherwise.
This field remains dynamic, full of potential for massive impact and exceedingly confusing for most of the professionals in it.
What I learned from these conversations is that this field remains dynamic, full of potential for massive impact and exceedingly confusing for most of the professionals in it, let alone the newbies just finding their way. Those are the perfect ingredients for a disruptive annual conference and weekly newsletter.
But I’m getting ahead of the story.
Groundhog Day no more?
I started my learning journey with Mike Wallace, a partner at the consultancy ERM, one of our advisers and a longtime friend of GreenBiz, who has spent decades advising corporations, nonprofits and governments on the development and implementation of ESG strategies. As he referenced in a piece for GreenBiz some years ago and in our conversation some weeks ago, shifting the power of the capital markets toward sustainable outcomes takes persistence and patience.
A word cloud of the conversations I’ve had these past weeks would show the words "Groundhog Day" appearing in large type. As Wallace told me, "I'm telling the same story each day. But there’s always a new audience, always someone new who finally gets it."
Wallace has been proselytizing ESG since before the acronym existed and he sees Groundhog Day’s repetition finally coming to a close. "The [California] Department of General Services has been analyzing their footprint. Down the hall from them are CalPERS and CalSTRS, buying shares of stock and walking the talk. The people who buy vehicles, tires, asphalt ... they’re now thinking about carbon. It's crazy what's going to break open here. I’ve never seen anything like this."
Pretty much no one has. Over the past 18 months, ESG and its related lexicon have leapt from footnotes to headlines. A Google Trends search for "ESG" yields a time-series chart reminiscent of the early days of COVID. In this case, it’s a curve we don’t want to flatten.
With this increased visibility, I’m finding that my own green finance version of a Cranky Uncle vs. Climate Change skirmish has taken a sharp and encouraging turn. My uncle, an executive at a commercial bank, a year ago would ask me, "How is the (profanity) do-gooder nonsense at GreenWhatever going?" Lately, he’s been entering my inbox with a different tone: "Tell me more about the EU taxonomy?"
That said, there are still formidable barriers. As Lisa Shpritz, environmental business and engagement executive at Bank of America, shared with me, "With this momentum, you’d think that climate is top of mind all day, every day for business leaders, but it’s not. We’re still trying to get our heads around how we keep opening the tent."
Mythbusters of ESG
I later spoke with Bob Eccles, visiting professor of management practice at Oxford University, where I had the pleasure of completing my graduate degree. He has spent an illustrious career working to dismantle the entrenched myths that have been the bane of ESG professionals. The positive performance of ESG assets over this tumultuous year has revealed the ideological and illogical roots of these myths and just how deep they run. "Situations like with [SEC commissioner] Hester Peirce … they’re locked into an ideological position but then accuse people like me of being an ideologue. Asset managers are spending all this money — and it’s a highly regulated industry; they have to earn returns — you think they’re all just trying to grow trees or something?"
Eccles and his fellow travelers have long served as Wall Street whisperers on why ESG investing is more than mere values-based negative screening that unwittingly diminishes returns. I left these conversations hoping Eccles and others will soon be relieved of this duty, though I fear otherwise.
It’s not just the cranky uncles of finance who have exhaustive questions on a matter they not long ago wrote off as nonessential. The GreenBiz community of corporate sustainability leaders have been sharing with us that, as their colleagues in various functions are encountering significantly increased scrutiny of their firms’ ESG performance by investors, their knowledge and experience is in unprecedented demand. As one head of sustainability at a bank told me, "My stuff went from being slotted into the last three minutes of the meeting to being agenda item No. 1. It wasn’t a gradual shift."
ESG in the family office
Another conversation afforded me a window into the family office, an asset owner not typically thought of in the ESG space, which tends to focus more on pension funds, insurance companies, endowments, sovereign wealth funds and foundations. For a quick sense of scale, the 20 largest family offices in North America own $751 billion of assets. That figure sits somewhere between the assets owned by China Investment Corporation and the National Pension Fund of South Korea, respectively the third- and fourth-largest global asset owners.
As Erika Karp, chief impact officer of Pathstone, explained, family offices’ relationship to ESG is interesting for a number of reasons, but largely because the decision-making process behind how those assets are managed is directly tied to the values of an individual or family. They are driven by a much more relatable decision-making and engagement process than the massive, complex institutions we entrust with our 401(k) funds (which you can assess against your own values here). That is, they represent the kind of direct, democratic engagement with companies that some activists — including Michael O’Leary and Warren Valdmanis of Engine No. 1 renown — are trying to instill among institutional investors.
Karp’s job is to help her clients find signals amid the ESG noise — a pertinent task in a space ripe for snake-oil solutions (another standout term in the aforementioned word cloud exercise). In that vein, she’s seeing a significant shift back to the self-stewardship of assets, especially as Baby Boomers and their progeny inherit more than $30 trillion of wealth while demanding transparency and accountability in how that wealth is managed.
The implications for asset managers and financial advisers is significant. "If you really know what you’re doing, you should be able to say it in one word," Karp told me. "ESG is everything and nothing at the same time. The problem with ESG is that the nomenclature is still not resolved. There is no such thing as ESG investing, but there is of course such a thing as ESG analysis."
Everything and nothing. It may sound a bit like a Zen koan, but she’s got a point.
Change starts from the top
There is a critical mass — including even my cranky uncle — that have come around to seeing the value ESG data and analysis provide: that more information is better than less, assuming such information is accurate, comparable and well-curated. As Lauren Gellhaus, head of ESG at the Teacher Retirement System of Texas, told me, "The biggest challenge is trying to take data from all the various sources and make it actionable. Yes, there are frameworks around what’s material, but there’s still grey in ESG."
Karp suggested I look up the demographic composition of the boards of trustees for some giant endowments and pension funds. Issues that involve humans are complex, but out of complexities, simplicities can emerge. I think I got what the exercise was meant to show, the implication being that they do not reflect the fullness of humanity. Diversification shouldn't be limited to one's portfolio.
The culture guiding the investment industry is certainly changing, and there are ample studies one could cite to demonstrate that it’s not just the portfolio that quantifiably benefits from diversification. The investment industry more broadly is being upended, in no small part due to ESG. In many are calling the decisive decade for climate action, the bright spotlight on ESG is forcing us all to understand that financial returns alone are no longer the bottom line.