ESG – come on people!

A recent Globe and Mail piece suggests: When it comes to ESG issues, Canada’s financial industry needs a skills upgrade

Here are some extracts:

  • There’s no shortage of discussion about the nuts and bolts of environmental, social and governance issues. Governments, regulators and investors are demanding more disclosure, more analysis and more management of business risks related to sustainability.
  • The stated goals are well known: less impact on the environment, net-zero emissions, better participation in the work force by people from all walks of life, and safeguards against unforeseen risks, such as a pandemic.
  • But achieving them depends on making sure there are enough professionals to deal with all of the machinery, and that managers and employees know how it is all integrated into their jobs.
  • Banks, insurers and asset managers have all signed onto global efforts to tally up financed emissions and integrate environmental aspects into all investments and lending, efforts that intensified with the COP26 summit in Glasgow, Scotland, last year.
  • They are going to need an army of ESG experts. Recruitment is not keeping pace.

The article, written by Jeffrey Jones, is based in part on a recent survey Taking the lead in sustainable finance: a case for developing critical financial skills and competencies in Canada, based on research conducted by Deloitte and Toronto Finance International, funded by the United Nations-convened Financial Centres for Sustainability Network. As the Globe and Mail summed up some of the main findings: “All of the more than 100 financial services industry pros surveyed…said sustainable finance skills and talent were important to their organizations, and 68 per cent said the supply of people that have both is insufficient, and that more recruitment and training is necessary. Nearly three-quarters said sustainable finance skills are integral to nearly all their organizations do. Forty-three per cent said they had difficulties hiring people with the necessary sustainable finance know-how.

Indeed, the survey describes a real patchwork of a situation, with an absence of formal training opportunities, or challenges in evaluating those that are offered, and much make-do reliance on “conferences, on-the-job learning, self-study programs, and exposure to clients and peers.” No doubt this situation will improve markedly in coming years, if only because service providers see an opportunity and rush to fill the gap. That’s not the only element involved though in effective external communication. Anyone involved in the financial reporting process can recall occasions when a relatively short piece of disclosure was heavily debated and fine-tuned, with numerous internal and external parties weighing in and working toward a consensus. Some of those debates are no doubt unnecessarily prolonged and overdone, but we can hope that they sometimes result in a better balance between compliance and clarity than might otherwise have been achieved. It might be a long time until ESG disclosures necessarily reflect a comparable degree of experience and reflection.

Meanwhile, in other ESG news, BlackRock’s Chairman and CEO Larry Fink released his 2022 letter to CEOs. The Fink letters have been much covered in recent years, and held up as a positive indication of evolving attitudes – or alternatively, as Forbes put it, of being “beholden to antibusiness activism and political correctness.”. This year’s letter addressed these criticisms head-on:

  • We focus on sustainability not because we’re environmentalists, but because we are capitalists and fiduciaries to our clients. That requires understanding how companies are adjusting their businesses for the massive changes the economy is undergoing. As part of that focus, we are asking companies to set short-, medium-, and long-term targets for greenhouse gas reductions….
  • Divesting from entire sectors – or simply passing carbon-intensive assets from public markets to private markets – will not get the world to net zero. And BlackRock does not pursue divestment from oil and gas companies as a policy… 
  • Capitalism has the power to shape society and act as a powerful catalyst for change. But businesses can’t do this alone, and they cannot be the climate police. That will not be a good outcome for society. We need governments to provide clear pathways and a consistent taxonomy for sustainability policy, regulation, and disclosure across markets. They must also support communities affected by the transition, help catalyze capital for the emerging markets, and invest in the innovation and technology that will be essential to decarbonizing the global economy.

Well, at least it all seems fairly honest, and in an interesting dynamic with Emmanuel Faber’s self-description, that we looked at here: “I’m an activist of business being part of the solution, being the fundamental solution, the solution.” Plainly, a solution led by business will do as much as those businesses perceive as being within their sphere of interest, while ignoring (if not consciously trampling on) the rest. Fink is surely correct in pointing to the necessary role of government, while pointedly ignoring the prevailing reality, that there’s not a remote prospect of any of that happening to the required extent in any major country (least of all the flailing US). We’ll likely see progress on businesses’ current “skills” problem, while finding out that it all counts for so much less than we needed…

The opinions expressed are solely those of the author

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