ESG has been running into some turbulence in the U.S. And that’s not passed unnoticed in Europe.

ESG, an investment “discipline” that is good for fees and good for using other people’s money to pursue a political agenda but not for much else, has been running into some turbulence in the U.S. And that’s not passed unnoticed in Europe.

The Financial Times has a story on how European asset managers are reacting to this long overdue development. Some are downplaying their activism, but, if the FT is right, whatever their public stance, many are sticking with ESG.

The newspaper quotes the “head of stewardship” for a U.K. asset manager that is very keen to push, well, stewardship, a pompously pious word when used in an investment context.

Turn to that firm’s website to discover this:

We believe that responsible companies make better investments. That’s why we embed stewardship into our investment process.

If “responsible” means a primary focus on the bottom line and shareholder enrichment, then that’s splendid, but I somehow suspect that’s not the way it is being used here. To whom or to what is the company being “responsible?”

The head of stewardship gives some clues:

“The chilling effect from the increasing politicization of climate change in the US is certainly spreading to Europe and beyond…The danger is that we end up harming ourselves and future generations by pulling back.”

Who are “we”? Unelected asset managers?

As to the politicization of climate change, as fond as the Financial Times is of promoting the idea (and people who cling to the idea) that combating climate change was, in the investment area, apolitical until nasty American “right-wingers” came and messed everything up, the reality is that, while the science of climate change can be left to scientists, what to do about it cannot. The latter involves setting priorities, making trade-offs, and considering other such profoundly political questions. The financial industry does no favors either to itself or to its clients by pretending otherwise.

To take one example, European financial institutions, carried away by the green frenzy of a few years back, overdid their climate pledges and are now confronted with the fact that the wider economy has, to quote the Financial Times, been “slower to wean itself off fossil fuels than was expected when the targets were set several years ago.” “As expected” is doing a lot of work there. There have always been those who have argued that fossil fuels would be around for quite a bit longer than the climate establishment had forecast, and if there were any good reasons to dismiss such dissident views out of hand at the time of the Paris Agreement they have long since disappeared. China, anyone? Coal, anyone?

The FT:

Many of the net zero ambitions were set at a time when the industry was “not scrutinised like we are now and the balance of risk wasn’t what it is now”, a senior asset management executive said. Internal lawyers had become much more likely to push back against sustainability targets and pledges that executives might be challenged about, they added.

Good.

Under rules taking effect this year, some EU financial institutions will have to reveal the progress they have made in living up to those pledges. That could be tricky. Heart of stone not to laugh, etc.

But the European asset managers who have decided that they will save the world plough on. The FT also talked to the “head of responsible investment strategic relationships and integration strategy” at another investment firm. Ah yes, “responsible,” again. He tells the newspaper that his dealings with companies over climate change are now “harder-edged”:

“We are talking about business strategies, progress towards transition, decisions that companies have to make. . . . And that is exactly where we want to be in conversations with companies, because we want them to be profitable and sustainable.”

Perhaps just concentrate on profitability.

The “transition” has not gone as policymakers anticipated, and that’s not going to change. Companies need to keep an eye out on any number of risks, including climate-related risks, but to benchmark them against a transition that may be little more than fantasy is a waste of management time and shareholder money.

Take this bit of news (via Bloomberg):

French officials are calling for a major reworking of the European regulatory framework, starting with ESG rules, to address the bloc’s flailing global competitiveness.

The simplification process must start with “a massive regulatory pause,” the government said in a 22-page document seen by Bloomberg. In addition, recent legislation must be reexamined and revised as it becomes clear the laws are “ill adapted to the new context of exacerbated international competition and to the uncooperative policies of our main international competitors,” according to the Jan. 20 document.

Oh.