Is ESG over?

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Katie Martin (0:39)

E, S, and G are possibly the most explosive, divisive three letters in the English language, at least in financial market circles. The idea that investors can put their money to work along the grounds of environmental, social, and governance agendas, basically, use their money to do good, it's in serious trouble. It was the hottest thing in finance. It was the hottest thing on Wall Street and in the city of London for the longest time. And now all of a sudden is taking flag from all angles. And we are going to ask, is ESG dying?

This is the Unhedged podcast from the Financial Times and Pushkin. I am Katie Martin, a markets columnist at the FT in London. And unusually today, I'm joined by an Unhedged podcast newbie, Simon Mundy, who's the editor of the FT's Moral Money. Simon, thank you so much for rocking up and talking to us.

Has anyone ever questioned moral money as a label? Is money moral? Has anyone ever taken the mickey?

Simon Mundy (1:38)

Yeah, very, very much so. So one nice thing about the name, apart from the fabulous alliteration, is that it pushes certain people's buttons. And I think there's an assumption that we might be finger wagging and moralizing.

But really what it's about is digging into the ethical questions that underscore business, finance and capitalism as a whole. And as we're about to discuss, this is a great time to be exploring those questions.

Katie Martin (2:03)

So, I mean, God, where do we even start with this thing? It's just become such a kind of fevered scene around ESG. But certainly when you first took on Moral Money, it was red hot. Every asset manager on the planet was saying, we've got a better ESG strategy than those guys down the road. It was a real kind of competitive point.

What has changed?

Simon Mundy (2:25)

Yeah, so as you say, I started this particular job in the autumn of 2021 So just in the run up to COP26.

And then there was this tremendous sense of momentum around private sector and public sector government action also. But in particular in the private sector, it was very notable. There was this sense of finally people are finding religion on climate stuff. And of course at COP26, that was the big launch party effectively, among other things, for GFans, the Glasgow Financial Alliance for Net Zero, which was launched with a huge amount of fanfare under the leadership of Mark Carney and Michael Bloomberg. And you might remember that there was this press release which went out from GFans saying $125 trillion of managed assets has been rallied behind the standard of Net Zero.

And I remember seeing that, and it just reminded me a bit of, do you remember when after the invasion of Iraq in 2003, George Bush did that press conference on an aircraft carrier with this banner behind him saying, mission accomplished?

Katie Martin (3:34)

Yeah.

Simon Mundy (3:34)

And it reminded me a bit of that because, yeah, most of the biggest, at least Western financial institutions had signed up to this, but had signed up to what exactly?

There was very little costs involved immediately in upfront for these big financial institutions. But then when the rubber really started to hit the road, when conservative politicians in the US in particular started pushing back against this, we've seen a lot of that early enthusiasm fall away.

Katie Martin (4:10)

No, exactly. And so as you mentioned, it has become like a real political hot potato in the States. It's a real kind of blue state, red state thing. The Republican controlled states, depending on who you listen to, will describe ESG investing as something approaching like some sort of satanic communism that's a kind of rejection of capitalism.

What is it about ESG that pisses people off so much? It's just like low key annoying for lots of people, but it's like massively annoying for right wing politicians in the states. Why does it get people so hot under the collar?

Simon Mundy (4:50)

Well, I think it's particularly in the US that it does get people hot under the collar.

The sort of more proximate reason the last couple of years has been that conservative media, notably Tucker Carlson during his cut short career on Fox News and decided to really make it a drum that he kept on beating. It was really, I think, blown out of proportion as this sort of stalking horse for all sorts of great social changes. But the larger structural reason goes back much, much longer.