It’s been quite a week in terms of ESG and sustainability. A backlash – well sort of – but from one outsized character and the world’s richest man and – in another case – the head of sustainability at a leading bank and fund manager.
With Elon Musk it is more a case of expecting the unexpected, but he has described ESG as a scam.
That is one opinion, but there is quite a lot of hard news at the core of developments. Tesla was dropped from the S&P ESG 500. This was for several reasons – one was due to the E – Tesla was still progressing but it seems peers from car manufacturing and suppliers are catching up and it has no identifiable process for reducing CO2 from its manufacturing processes.
Other issues concern governance around issues of racism at one of its plants, which do not seem to have been dealt with, and finally fatalities from automated vehicles.
Any perusal of social media will show Musk suggesting ESG is leftwing, that it’s absurd Exxon is included in the index and more.
Of course, there are issues with Tesla including a recall of cars and its falling share price amid the general carnage on the S&P and NASDAQ. Musk may be in regulatory and corporate trouble as he tries to back out of a deal for Twitter.
The question is whether, somewhere, in all this arguing and bad tweets, does he have a point about Tesla and Exxon?
It is certainly a test for ESG.
Okay next up. Stuart Kirk, global head of responsible investing at HSBC Asset Management made a speech at an FT conference in which he questioned whether the impacts of climate change mattered and bemoaned the "amount of work these people make me do" as a result of conversations about the environment.
Once again, there are clearly legitimate questions to ask about risks. It is possible risks have been overstated both in terms of banks' balance sheets and investment portfolios, but surely this is not the way to start a debate?
Fund buyers and analysts are now asking whether HSBC’s sustainable funds should be reviewed. Not actions you are meant to provoke as the boss making a speech at a conference.
I think this would be more important for IFAs if regulations around fund labels and suitability and sustainability had made it into the rulebook. They obviously have not yet. But it poses interesting questions for the future.
Elsewhere in regulation land, the FCA will remove permissions from IFAs if they don’t use them swiftly. A warning, a second warning and 28 days from the first you lose permissions.
This seems to derive from LCF in particular which had permissions it did not use but which confused investors and, one might argue, the regulator itself.
Finally Charles Randell, the outgoing chair of the FCA in one of his final speeches has discussed regulatory policy outcomes listing several areas where things did not go well, and how policy needs to be coordinated between the government and regulators.
Important to hear him discuss the challenge of crypto, but advisers will be interested to hear him restate concerns about policy on innovative ISAs and pension freedoms as examples where Treasury coordination with regulators was lacking.
Strong words but advisers will note that he is ‘outgoing’.