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  • So what is ESG?

  • Well if you're anything like me, an acronym makes you flinch.

  • It stands for Environmental Social and Governance metrics.

  • And you may hear that and think, well, it means do gooding.

  • You might also think that actually it

  • reeks of hypocrisy, given that many financiers

  • and companies are tossing it around these days.

  • However, there's something really important to consider,

  • which is today, ESG is as much about risk management

  • as it is actually about social activism

  • or trying to change the world.

  • What many companies and investors have realised is that

  • if they ignore what people used to call "externalities,"

  • other words, a company's environmental footprint,

  • its impact on a community, what's happening in its supply

  • chain, what's happening in terms of social issues like

  • diversity, inequality.

  • If companies and investors ignore those issues,

  • it has a nasty habit of coming back to bite them.

  • What do we want?

  • Justice!

  • Just think about #MeToo and what happened there.

  • Before that scandal exploded - or rather that movement

  • exploded online - most boardrooms

  • assumed that sexual scandals, gender issues,

  • were something that they didn't really

  • need to worry about as a corporate governance matter.

  • But after #MeToo exploded, they suddenly realised that

  • the power of the crowd coalescing suddenly could shake

  • the entire board.

  • Just consider for a moment the turnaround

  • in fortunes of the fossil fuel sector.

  • If you dial back half a century, the oil and gas sector

  • in America was actually the largest single component

  • of the S&P 500.

  • But then it began to shrink in terms

  • of its relative footprint.

  • A decade ago, fossil fuel companies

  • were still incredibly powerful and strong, and so much so

  • that most of them assumed they could brush aside

  • the complaints and protests of environmentalists.

  • But in the last year, as the ESG sector

  • has swelled in power and might and confidence,

  • not only have the share prices of the big fossil fuel

  • companies fallen by half, but they're

  • beginning to be forced to think about doing things

  • like mergers.

  • They're beginning to being forced

  • to actually make pledges to cut back on their activities

  • and to embrace renewables, and to show the world that they

  • actually can be green.

  • This is our historic moment.

  • There are many reasons why the arrival of President Joe Biden

  • has been a dramatic change in style and policy and tone,

  • compared to the presidency of Donald Trump.

  • But one area where the contrast is particularly strong,

  • is in the area of ESG, and particularly

  • the environmental issues.

  • We desperately need a unified national response

  • to the climate crisis.

  • As soon as he arrived, President Biden

  • rejoined the Paris Climate Change Accord.

  • He pledged that he was going to try and clamp down

  • on the fossil fuel sector and bring

  • in much tougher environmental standards.

  • All of that shows that America really

  • is starting to embrace many of the environmental policies

  • that so many have been asking for such a long time.

  • But the really big question is, what happens next?

  • Because in addition to debates around shale or fossil fuel

  • or carbon, there's a whole set of potentially very important

  • changes happening in terms of the investing landscape, which

  • may or may not create a flood of money moving into ESG

  • products going forward.

  • Right now, it's actually surprisingly hard for investors

  • in America to invest in ESG-friendly assets

  • because the idea of fiduciary duty that's

  • been upheld in the Washington agencies

  • essentially says that fiduciaries,

  • i.e. fund managers, can only chase financial returns.

  • But if the Biden administration loosens those rules a bit,

  • you could see a whole flood of money moving into ESG

  • because suddenly pension funds and even retail investors

  • will want to actually purchase instruments

  • that can invest in ESG because they feel that it's easier.

So what is ESG?

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B1 UK FinancialTimes fossil fuel fossil environmental fuel sector

The FT's Gillian Tett explains ESG's importance | FT

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    洪子雯 posted on 2021/03/01
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