Rethinking ESG

10 Jun 2020

Rethinking the E in ESG

Harold Hutchinson | Head of Research

In a previous post, we examined the compelling basic case for the E in ESG – the risks to our pale blue dot from environmental destruction. Let’s now think a little more deeply about this.

Professor James Lovelock has argued that, with the beginning of the Industrial Revolution, a new era began on earth, sometimes referred to as the Anthropocene. It involved growing feedback loops between man and nature, as humans started to convert stored solar energy (fossil fuels) into useful work. Originally, Lovelock examined this in the context of the health risks from an emerging ozone hole in the atmosphere caused by manufactured chlorofluorocarbons (CFCs). Today, other health threats remain, joined by growing climate and pandemic risks.

In this Anthropocene era, the E in ESG is more important than ever, but there is one aspect to it that troubles me. It is increasingly being interpreted in too narrow a context – in boardrooms, financial analysis, and policy recommendations. More and more, we consider the biosphere as some sort of machine that needs to be ‘fixed’, a problem for ‘experts’. Perhaps this perspective is a legacy of the industrial age itself.

However, the ‘human and machine’ image is a dangerous simplification because it implies we are not part of the problem ourselves. This comforting view saves us the painful job of thinking, but the inconvenient truth is that we simply cannot continue to live the lives we have led to date. By ignoring our acceleration away from a sustainable relationship within our biosphere in all its dimensions, we are moving into areas of uncertainty and tipping points that could threaten our very existence. The planet is no Meccano set with which we can toy and tinker, and we need to wake up quickly to that fact.

The root cause of the difficulties we confront today – from climate issues to global pandemics – will never be solved by blinkered thinking.

We resist changing our lives to support and enhance nature’s rhythms, but that is the key to real sustainability. In a country like the UK, we have huge opportunities to create virtuous not vicious circles in harmony with the biosphere, as Professor Dieter Helm at Oxford emphasizes in his recent book, Green and Prosperous Land – incidentally a great read. Our vast renewable energy resources are critical to this, but it is not just about ‘lower emissions’ that can be neatly packaged in a sustainability report. It involves a richer perspective.

Working as part of nature has all kinds of potential upsides in terms of purer water, more robust natural flood protection, enhanced sequestration of carbon, and superior health. Many are very compelling economically – we just need to open our eyes to the possibilities.

The root cause of the difficulties we confront today – from climate issues to global pandemics – will never be solved by blinkered thinking. We need to open our imaginations to the broader options embedded in our relationship with nature, living as an integral part of it. Wordsworth was right – in the Industrial Revolution, we gave our hearts away. Today we are also at risk of giving away a good deal more.

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The blog does not aim to give investment advice, but is designed to afford relevant longer-term context to investors, encouraging a broad perspective where uncertainty is high and a spirit of learning is important. The views expressed are those of the author, not those of Investec.