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In this series, we break down the jargon and explain a popular investing term or topic. Here is environmentalism.
What is this?
The recent rise in use of the term ‘greenhushing’ has led to some lame jokes about telling plants to stop replicating.
But the term relates to the increasingly common practice of remaining silent about your company’s climate and other ethical promises. This is partly motivated by fear of accusations of ‘greenwashing’, that is, making false claims of ecological virtue.
Are these fears well founded?
Yes. In 2022, authorities raided the offices of DWS, the asset management subsidiary of Deutsche Bank, following reports that it was overstating the proportion of its funds invested according to ESG (environmental, social and governance) criteria.
DWS was subsequently investigated by the German newspaper Bafin and the US watchdog SEC. Last month, it was reported that the company, which faces a $25 million SEC fine, has been hit by a new investigation into the matter.
Keeping silent: The term relates to the increasingly common practice of remaining silent about your company’s climate and other ethical commitments.
Other reasons it’s in the news?
This month, two major money managers – JP Morgan Asset Management and State Street Global Advisors – left Climate Action 100+, the world’s largest climate change lobby. The groups manage funds worth $3.1 trillion and $4.1 trillion, respectively. His departure sparked a debate about his reasons.
So why did they leave?
Some argue that fund managers only join such associations if there is a marketing benefit. Paying lip service to sustainability commitments has been seen as a way to win business from private and institutional shareholders.
Others cite the backlash in the United States against ESG investing which, in some quarters, is seen as not only dangerously “woke” but also detrimental to jobs and the economy. Objections from some states are growing and there are warnings of painful repercussions for ESG-oriented managers if Donald Trump wins the election.
Is anti-ESG sentiment growing in the UK?
Opposition to ESG criteria is more moderate than in the United States, but it is significant that the Labor Party has scaled back its plans in this area. The party has said it will spend around £15bn a year, rather than £28bn, on battery manufacturing, flood defences, hydrogen energy, home insulation, offshore wind projects and more tree planting. . Meanwhile, the Government is contemplating tighter controls on the ESG ratings sector.
Does this mean more environmental protection?
Almost certainly. Much attention is paid to the pronouncements of the American giant Blackrock, which is custodian of $9.1 trillion in savings.
Larry Fink, the head of Blackrock, has been seen as the poster child for ESG investing. But the group is now less vocal about the issue, probably because it hopes to escape censure from Republican politicians.
But Blackrock’s commitment to saving the planet appears unchanged and its international division remains a member of Climate Action 100+.
Does it suggest broader changes to ESG investing?
In the UK, many private investors have withdrawn cash from ESG funds.
This is likely to lead to a rebrand, where the funds will have narrower objectives and focus on governance and sustainability.