Everyone would like to believe that the work they do is critical to improving the world. Prior to the financial crisis investment bankers active in creating the financial products that ultimately led to the crisis saw themselves as “masters of the universe” delivering wealth for society. A similar self-importance can be seen among sustainable bankers with a belief that their work will somehow solve the critical economic, environmental, and social issues facing today’s world. An advantage of being a retired banker is the realization that banking and finance should not be the center of the world.
A series of recent articles have reinforced my view. Two articles in the Financial Times in August (“The whistleblower who calls ESG a deadly distraction” and “The ESG industry is dangerous”) led me to the Secret Diary of a Sustainable Investor written by Tariq Fancy, BlackRock’s first global chief investment officer for sustainable investing. His “secret diary” is worth reading in full.
As noted in early in this well written and entertaining essay, he sees sustainable investment as “a dangerous placebo that harms the public interest.” He goes on to note that a systemic crisis requires systemic solutions – and the environmental challenges we face are systemic in nature. He correctly notes that “many things that are lucrative are also bad for the world.” As a result, in a world where “we’ve built private firms from the ground up to do one thing really well: extract profits,” it is not surprising that firms are not sufficiently addressing climate change.
Fancy also brings additional nuance to the supposed view of Milton Friedman that the only purpose of a corporation is to make money. Fancy notes:
What’s most galling about the entire debate is how Friedman’s own message has been mangled. Yes, he said that the sole purpose of a business is to generate profits for shareholders. But that didn’t mean that he thought no one should look out for the public interest: in the very same paper he argued that the responsibility for protecting society fell to civil servants, whose authority business executives should not usurp as such roles “must be elected through a political process.” In fact, he called the idea of business executives taking on this role to be “intolerable” on grounds of political principle.”
This analysis leads to his conclusion that there is “a dire need for government action.” This view is supported by a recent article in The Economist on Glencore. As summarized in the final sentence: “Only concerted government action to tax carbon emissions and redesign energy systems will kill off king coal.”
Bankers with good intentions were prominent in Glasgow with assurances that their work could resolve the environmental challenge. This path was skeptically viewed by Christopher Caldwell in the New York Times. He noted that “(m)oney men have taken the thing over.” He quotes Gillian Tett from The Financial Times that Glasgow like other COP events have been taken over by “business leaders, financiers and monetary officials.”Caldwell goes on to note “(t)hat is bound to render the movement’s tactics and goals less democratic.”
This democratic deficit is further highlighted by Olufemi Taiwo in The New Yorker in a review of three recent books. The first book builds on the story of nutmeg and the role of the Dutch East India Company (V.O.C. in Dutch). Taiwo notes: “The global marketplace, created and shaped by forays like the V.O.C.’s in Indonesia, is fixated on growth in ways that have led to an era of depredation, depletion, and, ultimately, disruptive climate change.” The two other books reviewed tell similar stories about “hierarchy, commerce, and exploitation” highlighting broken climate politics. Taiwo notes that none of these books provide a solution for the politics but all note the need for political solutions.
So whilst finance should focus on issues of sustainability, bankers as individuals and professionals should be working to deliver the necessary systemic change within existing political structures. Perhaps outside their comfort zone but one required for long term, sustained change.
