A provocative speech on climate change that led to HSBC suspending an executive has split the asset management industry.
“Who cares if Miami is six metres underwater in 100 years?” asked Stuart Kirk, head of responsible investing at HSBC Asset Management, during an FT conference last week. “Amsterdam has been six metres underwater for ages, and that’s a really nice place. We will cope with it.”
Many in the industry disagreed with the tone of Kirk’s speech. “Flippant, off-the-cuff remarks don’t do any favours,” said one executive. Another said: “He was maybe trying to be a bit too clever.” But some welcomed Kirk’s willingness to expose groupthink and highlight some of the inconsistencies of environmental, social and governance investing.
“I welcome a contrarian view as sometimes the ESG market is overly one way,” said Desiree Fixler, the former head of sustainability at DWS, who was fired and later alleged that the German asset manager misrepresented how it used ESG metrics to analyse companies across its investment platform. “ESG has become such a tremendous fundraising machine that even the doubters have jumped on board.”
Hendrik du Toit, chief executive officer at asset manager Ninety One, said: “This has given us all food for thought and encouraged healthy debate around the biggest existential topic of our time. It doesn’t change the fact that we need to address the climate challenge that impacts the vast majority of the world’s population and resonates far beyond the S&P 500.”
Petra Dismorr, chief executive of consultancy NorthPeak Advisory, said: “It’s always good to have two sides of the debate. The biggest problem for ESG is that everything has become so polarised and politicised.”
Few have been willing to publicly criticise ESG, the fastest-growing corner of the asset management industry. “I just don’t want to go there, it’s too sensitive,” said one London-based fund manager. “The ESG net zero zeitgeist is so all-powerful you just can’t stand in its way.”
Global sustainable fund assets have almost tripled in the past three years, growing to $2.77tn at the end of the first quarter of 2022, up from $1tn in 2019, according to Morningstar.
This has led to a battle for talent, a gold rush in product development, and spawned an entire industry of related consultants and data providers, adding another layer of costs for investors. Meanwhile, the industry faces growing claims of “greenwashing” — groundless environmental claims by businesses seeking to launder their image without making serious changes.
Asset managers strongly criticised Kirk’s assertion that climate risk does not pose a financial risk to investors. “ESG factors are long-term financially material,” said Michelle Scrimgeour, chief executive at LGIM, the UK’s largest asset manager. “We need to stay the course.”
Saker Nusseibeh, chief executive at Federated Hermes, said: “Real investment opportunities take long-term planning — include ESG factors — alongside traditional financial ones and require genuine engagement and dialogue with investee companies. If your time horizon is shorter, then that is an entirely different debate with different parameters and risk perspectives.”
“Climate risk is a risk that investors should be concerned about,” added John Ions, chief executive at UK boutique Liontrust Asset Management. “Climate change, population migration and biodiversity loss are all things that affect companies and businesses.”
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Echoing Larry Fink, the BlackRock chair and chief executive, Ions said that the climate transition marked “an important investment opportunity for investors to provide capital to new technologies and business models”.
Kirk’s complaint about the sheer “amount of work” devoted to dealing with the financial risk from climate change struck a chord with the asset management industry, which is weighed down by paperwork and reporting requirements.
“ESG is in danger of becoming a bureaucratic tax on investors and shareholders,” added Fixler. “We’re living in a world where ESG executives are paid on PR statements and aspirations rather than on actual impactful results.”
HSBC declined to comment.
Additional reporting by Owen Walker in Zurich
