ESG, sustainability, impact, climate — whichever focus suits you — the Inflation Reduction Act probably felt like a big win.
But sustainability wins tend to produce short-lived celebrations. Two minutes into the party this week, the first "yeah, but" calls amid the cheers reminded us (rightfully so) that we’re dancing on the brink of a mass extinction. One of the more powerful "yeah, buts" in private sector sustainability is the mismatch between the story an organization tells its stakeholders and the one its lobbyists and trade groups tell elected officials.
Take Big Tech, now captured by the awkward MAMAA moniker. These companies get positioned as ESG darlings in public discourse and investment fund holdings alike. Running data centers on carbon-free energy 24/7 by 2030 is ambitious, good for the climate and good for business — an archetypal sustainability win. But consider Big Tech’s meager 4 percent annual spend on federal climate policy lobbying, and the aura of ambition dims.
The same applies to finance, and maybe even more so. "Engagement" is touted by the investment industry as a — if not the — key strategy to get to net zero. Take, for example, BlackRock CEO Larry Fink’s 2022 Letter to CEOs, where he focused explicitly on the firm’s growing Investment Stewardship team.
But while sustainability-minded investors such as Green Century, Trillium and Walden have been tenacious and consistent in pushing portfolio companies on ESG performance, the majority of the larger firms "say they engage, but it’s just a nice conversation, because they don’t have an escalation path," as As You Sow CEO Andrew Behar told me.
Much attention has been given to institutional investors’ engagement with portfolio companies on ESG issues. But in such a dynamic regulatory and policy environment for sustainable finance, surprisingly less has focused on investors’ own policy engagement.
There will be increasing attention paid to what is being said out of both sides of the mouth by financial services companies about ESG progress in portfolios and in policy.
Climate change think tank InfluenceMap has developed the "most comprehensive analysis on how the financial sector is influencing climate-related financial policy." I took a look into the organization’s Sustainable Finance Policy Engagement platform to get a better sense of how the largest financial institutions are influencing the passage of global sustainable finance policies.
The world is not so black and white, but dividing leaders from laggards can be a helpful heuristic. Here are a few takeaways on what best and worst practices look like.
Multinational insurance firm Aviva took the top spot on the InfluenceMap list, with a grade of B. Aviva Investors, the asset management arm of the firm, led much of the firm’s policy engagement.
A financial firm that can trace its roots back to the 17th century doesn’t seem the most likely candidate to be calling for major systems reform. But Aviva, as InfluenceMap points out, is nearly alone in its assertion that the "way money flows through capital markets today is a product of evolution — not design … Were we to create the markets from scratch today, we would create a very different system."
On engagement toward Paris Agreement-aligned climate policy, Aviva checks the boxes you’d hope to see from a sustainable finance leader.
The firm has pushed for integration of the Task Force on Climate-related Financial Disclosures recommendations into European Union policy and supported the mandatory implementation of TCFD by the G7. It has also pushed governments to require companies to disclose their action plans in aligning their business strategies and climate goals, and was early in vocalizing its support for the EU taxonomy, pushing further for the taxonomy to include environmentally damaging business activities in addition to sustainable ones.
The list of supported activities is too long to enumerate in its entirety, but Steve Waygood, Aviva Investors’ chief responsible investment officer, summed up its position well: "The financial services industry is failing. It is clearly influential; we need to use that influence for macro-stewardship, not just micro-stewardship with individual companies." A good example of macro-stewardship is Aviva’s advocacy to mandate net-zero targets for central banks.
Of particular note, too, Aviva has been an active supporter of a fundamental change that many in the institutional investor universe have been less keen to touch: The fiduciary duty to act in the best financial interest of clients should include ESG issues.
The lowest grade — a D — was awarded to Ameriprise Financial, which demonstrated limited and, when exercised, mixed engagement.
While the firm acknowledges the risk climate change poses to the financial system, it hasn’t demonstrated interest in or support for reform. Columbia Threadneedle, the asset management arm of Ameriprise, opposed the EU's sustainable finance action plan, emphasizing that policy of this nature should deal with operations in the real economy and not focus on finance, and that such a taxonomy would create more confusion than solutions.
That said, Columbia Threadneedle did voice support last year for the Biden administration’s focus on sustainable finance, saying, "It’s time for the U.S. to play catch up" on ESG policy.
Something all the D and D-plus grade recipients shared was a lack of detail about engagement strategy with policymakers and, importantly, a lack of disclosed memberships to influential trade associations (especially those known to consistently lobby against climate legislation). Or, when the memberships are identified, few details are given about the type of indirect influence on governance these roles have.
The key takeaway on both ends of the leader-laggard spectrum is — as with so much in the sustainability transition — about increased stakeholder awareness and expectation. The role of finance in realizing the transition to a clean economy is becoming clearer to stakeholders such as customers and employees, and increasing attention will be paid to what is being said out of both sides of the mouth by financial services companies about ESG progress in portfolios and in policy.
Not every industry has an advocacy group such as ClimateVoice, but as the last few years have seen, amid an increase in ambition from policymakers to enact climate-related financial policy, the contributions or opposition to progress on that front by investors and lenders will come more closely under the microscope. The perception that finance is pumping out greenwash is already heightened, and increased scrutiny by organizations such as InfluenceMap will only raise them.