Many thanks to Jim Whittington at Dimensional for the inspiration behind this little note. Jim introduced us to the concept of ‘greenwishing’ at our recent talk on values based/ESG investing (ESG - Environmental, Social and Governance). As it is the week of COP26, I thought it might be topical to in turn share this interesting idea with those who weren’t able to attend.
Many will be familiar with the idea of ‘greenwashing’. One only has to pick up a paper or turn on the TV at the moment to see the subtle and not so subtle attempts being made by big companies to appear as environmentally friendly as possible. Huge sums are now at stake for those who cannot present a good image.
But what about ‘greenwishing’? I would guess that you are less likely to have heard this one, yet it is far more common amongst people rather than companies. You see, ‘greenwishing’ is the hope each of us has that the actions we personally take actually have the positive environmental impact we think they will.
Investing is a science and at bdb we are evidence based investors. Very robust levels of evidence are required before we can accept as proof the merits of one investment choice versus another. The intentions of Stephen Fry and so many others are laudable but let us be clear, there is insufficient evidence right now that adopting an ESG approach with your pension and investment funds makes much, if any, difference to the direction of travel we are currently on with regard to the planet (no matter how much we might like to think otherwise).
Capitalism is a powerful construct and markets are efficient in allocating that capital to profit making enterprises. It is naive to think that just because you don’t own shares in a fossil fuel company in your pension, China will stop building coal power plants any sooner. Let us be honest with ourselves on the actual difference our actions are making or are likely to make.
Perhaps, in time, the pressure of Blackrock and other high profile fund managers will make company boards change their ways and there is resulting evidence that the planet and its environment is changing course as a result. I for one hope so for everyone’s sake. Sadly, there is sparse evidence to suggest that their activities are making any difference to the climate catastrophe right now. As I write, CO2 emissions are reportedly almost back to the record breaking levels they were at pre-pandemic, at the same time as ESG investment funds are attracting more inflows than ever.
It seems to me that Global Governments are the ones who control the levers that can make a real difference in the short term at least.
Until conclusive evidence emerges, there will always be an element of ‘greenwishing’ when it comes to the incredibly sensitive topic of ESG investing.