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Long-Term Matters: A world (nearly) on fire

The passion of the Brexiters, Donald Trump supporters and the far right in many countries is a wake-up call for those who think that all is well with globalisation.

An angry public is expressing deep frustration with established political parties. Why? 

Michael Sandel, Harvard’s star political philosopher, offers up one answer. “Citizens are rightly frustrated that politics fails to address the big questions that matter most to them: what makes for a just society, questions about the common good, questions about the role of markets.” 

He adds that, at present, the project of democratic self-government appears to be “slipping from our grasp”.

What does this have to do with investors? A lot.

The slogan of the moment is “regain control”. Those who want to use this zeitgeist focus on Mexicans, Muslims or whoever else is easily blamed. 

But the underlying dynamic is that ordinary people are the losers and they know it. Wages are stagnant, public services slashed and prospects for the youth are bleak. At the same time, the über-rich have never had it so good. 

As I’ve commented repeatedly, investors enable this in several ways. They reward management for boosting shareholder returns by cutting costs, regardless of the impact on employees and communities. And they endorse remuneration packages that drive this growing inequality. 

Unsurprisingly, academics conclude that the driver of polarised politics was the global financial crisis and the lack of effective political response.

But have not investors signed up to the UN Principles of Responsible Investment (PRI)? 

Yes, PRI signatory assets now account for $60trn (€54trn), about one-in-two investment dollars in the world. But ‘talk’ and ‘walk’ are very different things. 

Sandel’s comments about politics have much relevance to those who say ESG investing is a good enough response. “[Social democracy] has to become less managerial and technocratic and has to return to its roots in a kind of moral and civil critique of the excess of capitalism… [t]here is an alterative [to the populist movements] but the alternative is to go beyond the managerial, technical approach to politics that has characterised the established parties and the elites, to reconnect with big questions that people care about.”

And here rests the big challenge. 

The ESG project is today a project of the elites. No one has done better from the financial crisis than investment executives. Of course, there are exceptions. And yes, there is a difference between fund managers and asset owners. But the commercial tail wags the dog and self-censorship, even in the ESG community, is the norm.

Is the ESG project doomed to focus, at best, on incremental improvement and at worst, on ‘predatory delay’ deliberately designed to slow change and prolong the profitable but unsuitable status quo whose costs will be paid by others?

The financial crisis triggered the gridlock we experience today and polarisation after the sub-climate crisis will probably be much worse. 

As Alex Steffen, the inventor of ‘predatory delay’, says: “If someone sets a bomb to go off in a public square a year from now, is he committing a crime? Should he be stopped? Almost everyone would say yes. Should he be tried before a court of law and prevented from doing further harm? Most of us would agree that he should. What about 10 years? What about 100? When does our obligation to avoid serious, predictable harm to others end?

“Now, here is the tricky part: climate emissions (and huge array of other unsustainable practices) are the bomb, and your grand kids and great-grand kids are the victims.”

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