EDITORIAL

Looking back on the latest developments, the CEO of DWS, Deutsche Bank's asset management subsidiary, was pushed to resigned because of greenwashing allegations. HSBC's Head of Responsible Investment was suspended following his infamous speech on the incompatibility between climate and banking horizons. Meanwhile, the SEC in the United States is pondering new regulations to shore up funds’ ESG claims in a bid to stamp out more greenwashing.  

ESG is once again in the limelight – and subject to heavy criticism. The question is – is it a lifeline or just another smokescreen? Neither, of course. We contend much of this criticism stems from a profound misunderstanding. ESG will not change the world – or at least not enough. That is of course not surprising, because that was never what it was meant to do.  

Managing non-financial risks better will certainly not lead to a widespread change of business models. We will already have come a long way should we achieve more transparency and comparability in non-financial information disclosures. That would allow private players to better control the most material adverse environmental and social externalities at the core of their activities. As a result, the rise of SRI and ESG funds will probably not result in a profound transformation of our economies. At least not one capable of solving all our problems. It would be a grave mistake to pretend otherwise.   

That said, the inflationary geopolitical context has triggered a predictable rise in interest rates. It follows investors' expectations of returns will rise and exert a downward pressure on financial asset values, as the IMF already pointed out. The era of free money may be coming to an end, with direct consequences on the riskiest but instantly arbitrable assets – such as crypto-currencies.  

For some time now, Ksapa has stressed the proper consideration of non-financial performance was a lever for securing long-term asset valuations. This in anticipation of rising long-term interest rates. While ESG criteria integration still needs some work, it is a key risk control tool within our collective reach and supports a better redistribution of responsibilities. So, as ESG comes under fire for because of its perceived imprecision, lack of data comparability or insufficient transformational power, we must move beyond – and take decisive action. 

The quest for impact – or, better yet, of a truly regenerative economy – appears a much better ambition in that regard. Here are key reasons for that: 

• Funding requirements for the Sustainable Development Goals have increased since the Covid crisis, compounded by the ongoing geopolitical crisis. It is therefore likely national and international public policies will increasingly penalize negative externalities and value more positive alternatives; 

• Private players’ social license to operate is directly tied to environmental and social considerations; 

• The search for impact has become a major driver of innovation – and motivation, as demonstrated by the spirited debates during sustainable innovation fora. Ksapa indeed joined ChangeNOW, where we presented our SUTTI solution to sustainably transform agricultural value chains.  

In the face of combined inflation, commodity crises, geopolitical tensions, climate change and biodiversity depletion, investors and companies should increasingly combine: 

• The implementation of sound ESG policies based on the analysis of actually material issues – and 

• The development of strategies to live up to their responsibilities and pursue actual impact against the United Nations’ 2030 agenda.   

As always, we look forward to discussing these issues together! 

Raphaël Hara, Managing Director