ESG investing seems to have become a piñata of late, taking hard and repeated blows from all players — ranging from traditional skeptics and fossil fuel interests to climate change activists and reluctant realists. Collectively, they are bashing every aspect of the practice, from its still-vague definitions to its daunting goals.
Do recent setbacks for climate-conscious investing –– signal a sobering reality check from frontline practitioners or a convenient cover for slow walkers who do not walk their talk?
As I write, shareholder proxy proposals at annual general meetings that call on the big banks to cease funding fossil fuel projects are failing or are projected to fail. Investors have voted down (or are expected to) resolutions asking for stricter lending and underwriting policies at Wells Fargo, Bank of America, Citi Group, JPMorgan Chase, Morgan Stanley and Goldman Sachs. All six are signers of the Net Zero Banking Alliance, which requires a pledge to decarbonize their portfolios by 2050. The reason for their anti-resolution stance was spelled out by Citi’s CEO Jane Fraser. While saying that emissions from fossil fuels “must be reduced,” it was not “feasible for the global economy to shut down the fossil fuel economy overnight.” While that reasoning seems sound in a limited sense, it fails to acknowledge that speed is of the essence if we are to address climate change.
Meanwhile, the state of Texas is hitting out at any Wall Street entity that it perceives as “anti-energy” in its sustainable investment practice. State comptroller Glenn Hegar is demanding that more than 140 financial firms disclose their climate policies and whether they restrict or prohibit doing business with energy companies. Firms being queried range from private equity bigs Blackstone and Apollo to many lesser-known players. Companies deemed to be “boycotting” investments in the fossil fuel industry will be restricted from doing business in the state.
It was not “feasible for the global economy to shut down the fossil fuel economy overnight.”
And then there’s Vladimir Putin, Russian President turned green investment critic, who, in a recent meeting with ministers from the country’s oil and gas sector, said environmental concerns over fossil fuels have “been thrown on the scrap heap.” He cites Europe’s dependency on Russian oil and gas as an overriding economic reality, claiming that “European countries are ready to abandon the so-called green agenda and resume their reliance on energy with a so-called high carbon footprint.” Putin views the West’s drive for a clean energy transition as part and parcel of its hostility toward Russia — essentially, a purely political gesture. “Many political forces used environmental slogans in their election campaigns. Where is all of this now?” Of course, this beyond-cynical view is hard to take seriously –– but it is being spread widely by a propaganda machine capable of stoking civil unrest in European countries where energy prices are soaring sky-high, due to Russia’s invasion of Ukraine.
There is one critical voice that deserves close attention. Vaclav Smil, venerable energy scientist and economist, has spoken out with a lengthy list of blunt insights into the realities of funding the clean energy transition. In a recent interview, Smil asserts that calls for rapid decarbonization of the global economy are misguided, even “just plain wrong.” The problem, he says, is that ideological proponents of de-funding fossil fuel investments immediately do not understand the monumentality of the task ahead.
“The most important thing to understand is the scale,” says Smil. “An energy transition affecting a country of one million people is very different from a transition affecting a nation of more than one billion. It is one thing to invest a few billion dollars, another to find one trillion. This transition has to happen on a billion and trillion scale. People don’t appreciate the magnitude of the task and are setting up artificial deadlines which are unrealistic. People toss out these deadlines without any reflection on the scale and complexity of the problem. Decarbonization by 2030? Really?”
To be clear, Smil is a supporter of the transition: “I’m all for goals but for strict realism in setting them.” In his view, “we live in this world of exaggerated promises and delusional pop-science. I’m trying to bring it onto some modest track of reality and common sense.”
“People don’t appreciate the magnitude of the task and are setting up artificial deadlines which are unrealistic.”
One problem he describes is knotty, indeed: “The official goal in the U.S. is complete decarbonization of electricity generation by 2035. The country doesn’t have a national grid! How will you decarbonize and run the country by wind and solar without a national grid? And what will it take to build a national grid in a NIMBY society like the U.S.?” Further, he notes this hard reality: “This world is not yet done with fossil fuels.”
Smil’s view is grimly focused on reality. He states he is “not talking about what could be done, but looking at the world as it is,” a world where he sees only ineffective global collaboration and reluctant, sporadic political will to reduce emissions. His view is underlined in the title of his forthcoming book, “How the World Really Works: The Science Behind How We Got Here and Where We’re Going.” Its main theme is that climate change and the clean energy transition are unprecedented problems, principally because of the numbers: “… billions of everything — and the pressure of acting rapidly as we never acted before. This doesn’t make it hopeless but it makes it excruciatingly more difficult.”
There’s a sense of exasperation pervading Smil’s comments but I find them bracing — and challenging. From my seat at a media hub, I see thousands of people who are hard at work daily on figuring out how to finance climate solutions to show how the world could be, not as it is. Our future depends on their determination and resilience, especially when facing headwinds of criticism, whether valid or not.
