Sustainable investing must go beyond ESG

Environmental, Social and Governance (ESG) investing is a helpful step forward, but truly sustainable investing and green fund management must proactively look to companies that help tackle climate change, according to the CEO and founder of Clim8 Invest, Duncan Grierson. ESG was a useful negative filtering tool that saw investors avoid investing in big tobacco

Tom Lemmon
July 1, 2021
2 minutes

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ESG was a useful negative filtering tool that saw investors avoid investing in big tobacco or weapons manufacturers, but asset management must do more to tackle the climate emergency, Grierson said on the Innovate Finance podcast.

“That [ESG] isn’t green investing or sustainable investing per se,” he said.

“It’s better than a fund which will actively invest into things like oil and gas, but if you want to be an impact investor or a sustainable investor, in our view you need to be doing something very different, which is proactively looking for companies that have a product or service that is making a difference on climate change.”

A major problem with ESG investing is the lack of a global taxonomy to make it simple and clear for investors to know whether they’re investing truly environmentally sustainable activities.

Last week, Ashley Alder, board chair of the International Organization of Securities Commissions (IOSCO) told City Week 2021 that investors “desperately need” global collaboration on ESG rules. Grierson remains optimistic that the EU’s sustainable finance action plan would kick-start a harmonised approach to ESG investing.

“Right now you’ve got all the different rating agencies providing different ESG scores for the same company, which is completely bonkers,” Grierson said.

“If we can have standardisation across these different taxonomies that’s got to be a good thing… it’s definitely going to be a big step in the right direction,” he added.

However, Grierson also said that he was cautiously optimistic that governments would make good on their climate commitments after the UK government was criticised by the Climate Change Committee for its “illusory” progress in cuttting emissions.