Is sustainable finance being hijacked by a ‘surreal’ anti-ESG movement?

The anti-ESG movement currently being pushed in the US is both “surreal” and a “hijacking” of sustainable finance, an asset management heavyweight told a London conference today.

This week, US President Joe Biden blocked a Republican-backed bill that would have stopped retirement plans from incorporating ESG into their risk assessment, in his first-ever presidential veto.

This led Elsa Palanza, global head of sustainability & ESG at Intermediate Capital Group, to say at the conference in the British capital that “ESG has been hijacked and mis-named as something new." 

Delegates were told that "you can only hijack it if you treat it as though it's a concept unto itself, when it is an acronym that stands for a lot of concepts that have been true to good business for decades."

She added: “Many of those who are espousing anti ESG rhetoric come from the [Republican] party which has long claimed to been the party of business."

"ESG is an apparatus and this movement doesn't make any sense when you think about it from a logical point of view. But none of this is logical”, Palanz said.

She made her comments during a panel discussion on the topic of 'To ESG or Not to ESG? Calibrating ESG Strategies in a World of Volatility', hosted in London by law firm Akin Gump. 

Also present at the panel discussion was Katharina Neureiter, head of ESG and impact for EMEA & APAC at the Carlyle Group, as well as Rob Borthwick, manager of ESG and impact investments at British International Investment.

On the ant-ESG issue, Borthwick said: “The anti-ESG movement is a misunderstanding or misuse of the name. It's interesting that the libertarian wing of the Republican Party is now going to restrict choice in terms of what people can invest in and what managers can consider when they're making investment decisions.”

In the last year, anti-ESG measures have been presented in Republican majority legislatures in US states including Texas, Kentucky, and Florida.

Responsible oil and gas investment?

The Carlyle Group continues to have oil and gas holdings, and last year was reported to be exploring a multi-billion dollar offer for Austrian firm OMV’s oil and gas portfolio.

On the seeming contradiction between such holdings and taking an ESG-friendly position, Neureiter said: “Fossil fuels are part of the energy mix, and probably will be for the next 100 years." 

She continued by stressing that "our entire food system, clothing system and the world as we know it depends on oil. You can have a point of saying, ‘I don't want to be part of this’, or you can have a position of saying I want to be a responsible owner of these assets.”

Neureiter cited an example of Carlyle’s work with Colombian oil and gas firm Occidental, moving to reduce its carbon output by 50% by connecting its own energy output to the national grid, which sources much of its energy from hydropower.

SFDR vs SDR

A continuing area of debate and discussion in the sustainable finance movement has been the protracted rollout of Sustainable Finance Disclosure Regulation (SFDR) in the EU, which found itself turning into a ‘de facto’ labelling system. 

This has been contrasted with Sustainability Disclosure Requirements (SDR) in the UK, which is currently in its consultation phase and will begin as a dedicated labelling regime.

Of the SFDR versus SDR debate, Borthwick said: “I backed remain [in the Brexit referendum], but in one way the UK leaving the EU was extremely beneficial was it meant not having to deal with SFDR.

“SFDR has been a bit of a disaster, with the way it's been introduced with different moving parts moving at different speeds, constantly redefining the rules, it's been extremely difficult to manage," he told delegates. 

"The intention is very noble to try and prevent greenwashing, and hopefully in the future in will be a much more streamlined thing. I'm hoping that UK regulators will learn some lessons from SFDR.”