The Empire Strikes Back

September 2022

Having suffered the destruction of its unbreakable Death Star, Episode V of the Star Wars space opera opens with the Galactic Empire hurtling probe droids across the galaxy to hunt down the pesky Rebel Alliance responsible for disrupting the Empire’s flow as they seek to conquer the known universe.

These last months, it feels as though there is a similar coordinated counteroffensive against ESG that is as outlandish as it is far-reaching.  More than just some predictable headwinds or a bit of climate scepticism.  No, it is an outright assault on three fronts.

First, government.  Re-trading the climate consensus built under Theresa May, UK government support for climate policy is now at risk of falling apart.  The ascension of the Tory Net Zero Scrutiny Group, run by dissident MPs Steve Baker and Craig Mackinlay who was once the deputy leader of UKIP, is notable, the group blaming the cost-of-living crisis on green policies and seeking to delay or better yet, unwind them.

PM Truss’s selections for Energy and Business (Rees-Mogg) and Chief Economic Advisor (Sinclair) are pantomime caricatures at best.  Darth Rees-Mogg, who has openly advocated for “every last drop” of oil and gas to be extracted from the North Sea, is responsible for (wait for it) climate action.  And he claims the effect of rising carbon dioxide emissions on climate “remains much debated”.  In 12 years as an MP, he wielded his light sabre 22 times against climate bills.  Sinclair penned a book called Let Them Eat Carbon about the price of failed climate change policies and how government and big business profit from them.  Then there is the new Transport Secretary who has said “there is clear evidence that the ice caps aren’t melting after all”.  You can’t make this stuff up.

Then the second front line, the corporate flank where there is a growing backlash against corporations and corporate greenwashing.  This should be a good thing for those advocating Truth, however, the botched pivot to green ironically is creating a reality distortion field that bends the truth towards the dark side.  It is undermining the ESG story.  High profile cases against Goldman, Deutsche Bank/DWS, and others have resulted in middle-of-the night raids – the kinds with police, guns, oh, and fines.  Across industries and markets, companies are making public statements about “E” with just enough substance so they don’t do the perp walk.  Just.

Banks are now genuflecting to states like Florida, Texas, and West Virginia who are setting their sights on asset managers that look after their state pensions.  In August, Florida governor Ron DeSantis, at the helm of the imperial cruiser that is the state balance sheet, announced a plan to block fund managers – who control about $250 billion – from considering ESG factors when investing the state’s money.  West Virginia banned BlackRock, JPMorgan Chase, Morgan Stanley, Wells Fargo, and Goldman Sachs from lucrative contracts because of their perceived boycotts of fossil fuel.  In response, banks are walking back climate chat, highlighting to those Red State officials in private how much they still idolise (and lend to) oil and gas, notwithstanding their impassioned public vilifications of the same.

While we admire the incumbents and welcome them to join us on a journey of reformation and enlightenment, sadly we are more often than not being let down.  Perhaps the best known example is the impact investing poster child the RISE Fund, the $2 billion impact fund set up by capitalists-turned-humanitarians TPG Group, the $100 billion private equity firm.  RISE founder Bill McGlashan momentarily ascended to near Jedi status – appearing complete with Buddhist prayer beads and African woven blankets at conferences where aspiring changemakers marvelled at his newfound focus on social good – before being arrested in a college bribery scandal and getting fired.

Further examples of wobbles by titans of industry abound, leaving the business community open to cries of “woke capitalism”.  CEOs from the US Business Roundtable, which represents more than 200 companies such as Apple, JPMorgan Chase, Pepsi, and Walmart, have a new focus on stakeholders not shareholders.

Yet two Harvard professors who sent in their own probes to check out the group’s commitments to “stakeholder value” found that 98% of the members of the Business Roundtable had not sought or received board approval before signing up to its pledges, and 85% of the signatories didn’t even mention joining what they called an “historic commitment” in their proxy statements to shareholders.

No wonder increasingly we consider these statements to be public relations moves rather than a fundamental change in the gravitational field surrounding businesses ethics.  Instead of reforming the system, these firms are feeding us a diet of dangerous placebos meant to preserve the status quo.

Third and finally, there is the consumer.  Signals here are not great, either.  Increasingly, perception is that climate policies have brought about the exact hellscape they were designed to avoid.

In Indonesia, a ban on imports of synthetic pesticides and fertilisers as part of an effort to transition the country to all-organic agriculture has led to the collapse of an economy, a government, and a society.

Earlier this month, California announced a ban on ICE cars by 2035 and the very next week leading energy providers asked residents not to charge their electric cars due to rising temperatures and a shortage of electricity.  The US had energy independence five years ago and Biden cancelled it, say some.  Here in the UK, shuttering of fossil fuel infrastructure has exacerbated the global shortage of energy and has driven up prices by more than 100% since October 2021.  The cost of net zero (real or perceived) could breed popular resentment that sets tackling the climate crisis back light years.

It’s not looking good for the Rebel Alliance.  The Empire seems to be gaining the upper hand on all three fronts – government, corporate, and consumer.

So we must not be complacent.  Or think that the tide has turned and we have reached a comfortable tipping point.  Far from it.  The forces against us are many, fuelled by money, greed, and short-termism, powerful influences driven by powerful actors.

Yet as Yoda tells us, “In a dark place we find ourselves, and a little more knowledge lights our way.”

The explosion of awareness and engagement over the last few years continues and there are reasons to be encouraged.  Yvon Chouinard, founder of Patagonia, has given a $3bn company away to support environmental causes.  Closer to home, the retrofit debate has become a national news item.  We are coming together to advance the Net Zero Carbon Buildings Standard, with industry legend David Partridge recently appointed to chair the governance board.  And at FORE Partnership, we have decided to start construction with a major retrofit Net Zero office project, TBC.London, which is proving that you can do good and do well at the same time.

Time to lean in, it is.