The ESG movement is being exposed as a dangerous con

Sunak Zelensky

Even now, 18 months after Moscow’s tanks rolled over the Ukrainian border, the ESG mavens continue to search for their moral compasses – Hollie Adams/Shutterstock

Hardly a day goes by without another sobering reminder of the brutality of Vladimir Putin’s illegal invasion of Ukraine.

On Saturday night, the Kremlin launched scores of cruise missiles and Iranian Shahed drones at the eastern Kharkiv province. Six people were killed and a blood transfusion centre destroyed. President Volodymyr Zelenskiy described the “guided air bomb” strike against the medical facility as a war crime. It was day 530 of the war.

Still, some good can yet come from Russia’s war in Ukraine, by prompting a more critical eye to be cast over the West’s decadent, complacent “ethical” investing movement.

Environmental, social and governance (ESG) investors have tied themselves in knots over Russia, maintaining their support for companies that failed to get out of the country while refusing to back defence firms that have armed Ukraine in its fight against Putin.

With fund managers falling down a rabbit-hole over Russia, and NatWest in meltdown over the Nigel Farage affair, questions are rightly being asked about whether Britain’s financial institutions have been completely captured by hypocritical do-goodery.

The green finance craze is part of the same hollow crusade. Over the weekend, it emerged that Barclays has been using the “sustainable finance” badge to provide major funding to Shell. Laughably, the bank has classified a $10bn (£7.8bn) revolving credit facility it provided to Shell as “social and environmental financing”.

Barclays counted its share of the loan towards a target to deliver $150bn in social and environmental financing, according to analysis of the bank’s loan classification framework by this newspaper.  It will do little to counter growing concern among regulators and ministers about corporate “greenwashing”. Our energy needs must be funded, but such mislabelling can only erode trust in the financial system.

It’s time to ask whether the ESG movement is little more than a con, and a potentially dangerous one at that.

Even now, 18 months after Moscow’s tanks rolled over the Ukrainian border, and with an estimated 40,000 Ukrainian civilians and around 20,000 Ukrainian military personnel dead, the ESG mavens continue to search for their moral compasses.

When the war erupted, it was widely accepted that the West had a duty to help defend a European neighbour in the face of an unjust and unprovoked act of aggression at the hands of a more powerful and menacing neighbour.

European states and the US scrambled to provide vital military aid. Berlin was quick to send 1,000 anti-tank grenade launchers and 500 Stinger missiles to Kyiv, in a major about-turn from a long-standing policy of refusing to export weapons to conflict zones.

Similarly, for the first time in its history, the European Union agreed to provide military help to a country under attack. Russia’s actions prompted some hurried soul-searching among western leaders.

The UK has provided nearly £5bn of military aid in the form of 10,000 anti-tank missiles, 100,000 rounds of artillery ammunition, more than a hundred anti-aircraft guns, and a squadron of Challenger 2 tanks, making it the world’s second largest donor behind the US.

Zelenskiy says western defence systems have yielded “significant results” on the battlefield, repelling a “significant number” of Russian attacks in the past week alone.

Shamefully, the people of Ukraine have been unable to count on the same display of unity and support from the City. On the contrary, the self-appointed morality guardians of the ESG brigade continue to do their best to undermine the West’s efforts by effectively de-funding the defence industry.

According to the Government, two thirds of institutional investors have divested from firms involved in security and defence, or are considering doing so, on the basis of wholly mis-guided and myopic “ethical” concerns.

Arms contractors get lumped in with tobacco, oil, alcohol and other so-called “sin stocks” that are regarded as a threat to society. Yet, Ukraine’s predicament has shown that the biggest threat to Western freedom is Putin himself and without the West’s support for Kyiv, Russia may have been able to continue its imperial march beyond Ukrainian territory, further into Europe.

City minister Andrew Griffith and defence procurement minister James Cartlidge have gone one further, warning perfectly reasonably that the UK’s long-term security is being put at risk by the Square Mile’s growing aversion to defence stocks.

There’s a particular squeamishness over nuclear technology but without such a  deterrent, the wider West would be more vulnerable to a nuclear attack from Putin. Need City financiers also be reminded that without freedom, they wouldn’t be free to espouse such causes in the first place?

In an attempt to quell mounting criticism, the fund management industry has sought to play down the role of ESG, pointing to persistently low valuations on the London stock market as a bigger factor for a lack of appetite among investors.

But as Griffith points out, the reasons may not actually matter that much. “Whether it is deliberate or the unthinking application of ‘ESG’ policies…defunding defence is the opposite of social responsibility when peace and democracy are under threat,” he tweeted.

The City is in no position to be self-righteous when it comes to Russia anyway. For decades it was unquestioning in its welcoming of Russian money, while UK shareholders were quite happy for the likes of BP, Shell, and Unilever to forge close ties with the Kremlin. Even now, the West’s money men continue to prop up these same organisations despite their failure to exit Russia.

The whole ESG edifice is now facing a much-deserved reckoning.

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