The volume of commentary on ESG-related matters seems to grow by the day…

An article by Barbara Shecter in Canada’s Financial Post considered whether pension funds have a legal obligation to consider climate change when investing. Principles for Responsible Investment (PRI), an international group backed by some of Canada’s largest pension funds, thinks so:

• (PRI) concluded that the idea that fiduciary duty should encompass the pursuit of sustainability goals is supported by a legal framework in Canada that pre-dates the legally binding Paris Agreement on climate change…
• “Considering the implications of climate change for a pension fund is consistent with, and likely required by, an administrator’s fiduciary duties,” the report argues. “Specifically, the duty of prudence coupled with the duty of loyalty requires an administrator to consider factors that are financially relevant to fund performance and its ability to provide pensions.”
• PRI said the legal framework even provides for some cases where sustainability impact goals can be pursued “for reasons other than achieving financial return goals.”

The article does cite some views to the contrary, and PRI certainly doesn’t view the current situation as sufficient, arguing that more regulatory clarity is required. But the article indicates how far we’ve come in the last few years, to a point where ESG consistently forces itself onto the business agenda, whether welcome or not. In this regard, lawyers from Norton Rose Fulbright recently authored an article on The politics of ESG: balancing concerns and corporate realities of ESG in 2023. They comment:

• Environmental, social and governance (ESG) issues continue to dominate the corporate world as companies strive to balance the needs of multiple stakeholders may not be aligned with their priorities. For some stakeholders protecting the environment and ensuring we are socially responsible means being a good corporate citizen. In contrast, others argue that existing ESG initiatives are a form of ‘greenwashing’ – nothing more than a marketing tactic with too much emphasis, drawing attention from other more critical issues. There is no doubt that ESG has become politicized, bringing heightened focus and complexity to the issues and risks related to ESG, and this trend will likely continue during 2023. Companies need to consider that the ESG label and the components that make up ESG have been caught up in an increasingly divisive political and social landscape. This leads to the concern that an ESG-related misstep could lead to financial and reputational harm – at the institutional and executive levels.

The article considered nine areas of possible ESG-related concerns, with advice including an emphasis on having robust ‘back-end’ governance and systems in place for oversight and reporting. Meanwhile, back in the Financial Post, Tammy Nemeth wrote a piece called Beware the Warrior Accountants, a label referring back to a concept we looked at here:

• In 2020, Financial Times columnist Gillian Tett called attention to the “suddenly not-so-boring” accountants working to harmonize (environmental, social and governance) reporting at the World Economic Forum in Davos in January 2020. “The Warrior Accountant,” she wrote, will “do more to change the world on green issues than activists”.
• If accountants get involved in determining materiality, developing metrics, setting targets and establishing controls (for ESG), businesses will be better able to translate and manage their environmental and social impacts and the risks they face from social change.
• This will require the “warrior accountant” to shift their stance, from a defensive position where ESG helps to guard against reputational risk, to an offensive posture that is more assertive in putting organizational ESG performance in the public domain.

Viewing this as a bad thing, Nemeth posited that “governments are weaponizing accountants to disrupt and transform the global economy, and the government of Canada is fully on board — though without having bothered to ask Canadians if it’s something they really want.” Noting the pace at which the ISSB has been moving to finalize its standards, she notes:

• The process is barreling along like a train out of control with few Canadians who aren’t accountants aware it’s coming.
• The last time accountants had so much power to set the course of events was when U.S. Defense Secretary Robert McNamara and his “Whiz Kids” brought modern technocratic analytics to the war in Vietnam. That did not end well…

It seems to me though that the “breakneck speed” of the ISSB process needs to be seen in part as making up for wretchedly lost time, facilitated by an ability to build on the preexisting work of the Task Force for Climate Related Financial Disclosures and others, and that more easily than when waging war, initial missteps due to such haste can be relatively easily corrected if and when they’re identified. At the same time, I do think, as I’ve said from the start, that the prospect of so many highly-paid compliance-minded professionals rushing to occupy this space isn’t very appealing, being at worst another manifestation of the avarice and inequality that underlies many of our sustainability issues in the first place. And, in general terms, the larger the volume of articles and commentaries, the larger the assumed size of the pot of gold…

The opinions expressed are solely those of the author.