Pension funds and institutional investors made a “huge mistake” and exaggerated their role in environmental, social and government (ESG) issues to promote their products, the outgoing chair of Aberdeen Group, Douglas Flint, has said.
Flint, who has chaired the recently rebranded fund manager since 2019, said “ridiculously extravagant claims” had been made by some companies, which were driven by a mindset that their job was “not really about investing money: we’re just jolly good people and we’re saving the world”.
Flint, who also chaired HSBC between 2010 and 2017, told a City of London net zero conference on Monday that those claims may have been over-egged, in a way that put them at legal risk, particularly in the US.
“Our industry then made a kind of huge mistake. It became a marketing thing: let’s tell everyone we’re saving the world, we’re saving the planet,” he said, in comments first reported by the Financial Times.
The legal risks have risen in recent months after a severe drop in support for ESG issues in the US. Rightwing activists and politicians have targeted financial companies for supporting climate policies, having been emboldened by policymakers in Trump’s administration, which pushed for a resurgence in oil and gas production.
The ESG backlash has spooked some companies, worried that they could be targeted by lawsuits and blacklisting that could harm their US business. Even before Trump took office in November, Texas added NatWest to a growing list of companies accused of boycotting its oil industry, in a move that threatened the UK bank’s business with the US state.
For others, the ESG backlash has provided an opportunity to scrap international green initiatives that some bosses claim make their businesses less competitive. High profile investors including BlackRock and State Street have cancelled membership in voluntary schemes such as the Climate Action 100+ group in recent months.
Although US companies have led the charge in dropping ESG commitments, there are growing fears that UK investors could follow suit, meaning there will be less pressure on publicly listed companies, whose shares they hold, to reduce their carbon footprint.
That could be compounded by a potential watering down of the Labour party’s manifesto pledge to ensure that FTSE 100 companies – as well the City’s banks, asset managers, insurers and pension funds – adopt “credible” climate transition plans in line with the Paris agreement’s pledge to limit the rise in global temperatures to 1.5C.
Last week, a consultation on those rules showed the government was exploring less rigorous rules as part of a drive to cut red tape and compliance costs. One of the options being considered would mean the government “will not require an entity to have a discrete transition plan or to set climate targets in line with a particular climate goal”.
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“The focus remains on the impact of the environment and climate on business profits, not the impact of business on the planet,” Mark Cliffe, a visiting fellow at the Global Systems Institute, University of Exeter, said. “Given the lack of clarity on the government’s own climate plans, let alone the backtracking in the US and elsewhere, this is likely to lead to further backsliding on businesses’ commitments to climate action.”
Last week, a Department for Energy Security and Net Zero spokesperson said the government was “committed to making the UK the sustainable finance capital of the world.
“The consultation we have launched seeks stakeholder views on a range of approaches to transition plans, including on climate alignment, as part of our commitment to take forward the manifesto commitment in full.”