Science and technology have dominated the headlines as never before over the past year. We hung on every professor’s primetime words as the virus, then the pandemic, then the vaccine roared across our horizons. Rapidly behind came the technologists, mainly engineers, with the microscopes and gyroscopes and computers that pinned down the virus, then the ventilators to maintain life, and now the mass production and delivery of often-volatile vaccines to billions in short order.
The colour of this science and tech is overwhelmingly grey – the grey of the medical equipment, of the computers, of the delivery systems – and finance would do well to take note as its obsession with the colour green begins to wane.
Success stories tend to the grey. In the Klondike gold rush 120 years ago, only a handful of the 100,000 who went to the Yukon in search of glittering gold made money to speak of. The real winners were the peddlers of the shovels, the furnaces (to melt the frozen ground), the pumps (to get rid of the meltwater) and the work clothes. Most of their wares (except for Mr Levi Strauss’s) came in hues of steel and iron.
The colour of this science and tech is overwhelmingly grey – and finance would do well to take note
Fast-forward a century to the dotcom boom (and bust) of the late 1990s. Fortunes came to the new shovel makers, the producers of chips and hard drives and all the paraphernalia of the internet who flourished while their glitzier clients foundered. Silicon, the bedrock of much of this, is grey. So are the metals, including some of the rarest, that are now vital to the transition to net zero emissions – such as those used in the construction of better renewable energy sources, and the batteries to store the power. Hydrogen, colourless, may be the key to fueling future transport, including air travel.
Finance would do well to remember that. Colour is of course not the point. The focus on science and tech is key. If anything can be pitched as ‘green’ in our sector today, it probably has been. Beware of groupthink, says an important study out of Cambridge University on board responses to the climate challenge (see RoFM February 2021 for the full article). “There is no bandwagon un-jumped upon,” says one respondent in the research.
Climate change, and the closely-linked loss of biodiversity, of the natural capital on which we all depend, is near the top of many financial board agendas now. Boards have a fiduciary duty of stewardship, of their own and clients’ assets, and regulators have made plain that demands for climate-related disclosures will continue to grow, at pace. The relative immaturity of climate, and at greater scale biodiversity, as systematically integrated board topics raises issues, as the Cambridge research spotlights, around education and awareness, targeted recruitment, and gender and age diversity of boards.
Mark Carney, now finance adviser on COP26 to Britain’s prime minister and UN special envoy on climate, recently made this critical call to action: that every professional financial decision should take climate change into account. He noted that this implies that every financial professional will need to develop at least a basic knowledge of the technical issues involved.
‘Green finance’ and the broader family of responsible, sustainable, impact, ESG and faith-based investing have brought together a broad coalition of those aware that responsibility brings both financial and societal rewards and responsibilities. But the investment potential of the climate and biodiversity challenges, and the potential rewards for clients, have in some quarters become muddled with ESG scores, as companies seek to meet investor demand for commitment to issues like human rights, and diversity and inclusion, as well as climate change.
These actions are laudable in financial terms, cutting the cost of capital, raising financial returns and, as a side issue, avoiding investor activism. But better returns is not the only reason investors may want to allocate capital to securities with sustainable credentials. Many would legitimately argue that needing to demonstrate alpha misses the point of sustainable investing, where the aim is to ensure that returns are not being made at the expense of the prosperity of future generations.
This article was originally published in the February 2021 flipbook edition of The Review.
The full flipbook edition is now available online for all members.