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FTSE Russell must learn that language matters on sustainability

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FTSE Russell must learn that language matters on sustainability

ESG investing

FTSE Russell must learn that language matters on sustainability

Index provider’s decision to scrap ‘renewable energy’ label is regressive

Activists from Extinction Rebellion participate in a protest to stop climate change © David Mariuz/EPA

Last month, Greta Thunberg said to the UN: “We are in the beginning of a mass extinction. And all you can talk about is money and fairy tales of eternal economic growth. How dare you!”

For weeks, environmental and financial audiences have convulsed in reaction to a 16 year old’s speech that has no immediate effect on policy. “Language matters,” said Matt Christensen, global head of responsible investment at AXA Investment Managers, soon after she made those comments.

However, he wasn’t talking about Ms Thunberg; he was responding to FTSE Russell’s sudden reversal of its decision to introduce “renewable” and “non-renewable” designations for UK-listed energy companies. Instead, the index provider will classify fossil fuel companies simply as “oil, gas and coal”, while renewable energy corporations will receive the diminished label of “alternative energy”.

It is a regressive move, making it harder for savers to establish the sustainability credentials of their investments at a time when people increasingly want to know what their money is doing.

The Department for International Development last month found that 68 per cent of UK savers wanted their investments to consider social and environmental impacts alongside financial performance. However, it found that many people aren’t investing in this way because of a lack of clear and simple information and common terminology on sustainability and impact in investment markets.

Film-maker Richard Curtis launched recently Make My Money Matter, a sustainable investment campaign © Vickie Flores/EPA

As increasing numbers of investors demand transparency, using linguistic sleight-of-hand on sustainability issues is like building a sandcastle to hold back the tide. The film-maker Richard Curtis recently announced the launch of the Make My Money Matter campaign to help people choose sustainable investments that benefit people and the planet. He said: “We are on the edge of a second consumer revolution — where the public realises just how powerful their own money can be.”

Since 2008, the UK has cut the carbon content of its electricity generation faster than any other major economy. Playing with financial language risks undermining the UK’s leadership in the clean energy transition. It was recently reported that many big Japanese companies — including Mazda Motor, Nomura and Sony — have complied with the Task Force on Climate-related Financial Disclosures at a faster rate than their European and US rivals.

The government’s Green Finance Strategy in July noted that “meeting our objectives will require unprecedented levels of investment in green and low carbon technologies” aimed to encourage greater consideration of climate factors in investment decisions.

In June, the government made the UK the first G20 country to set a target of net-zero emissions by 2050 (swiftly followed by France). The Labour party voted last month to look at whether it was possible to change that to 2030. Neither timeline is easy. There will be some sectors that can reach net-zero by 2030, and some that will struggle to get there by 2050. But it is not in anyone’s interests to obfuscate the issue while precise timelines are set in law. Customers and investors want their investments to be compatible with international climate goals.

Earlier this year, the Bank of England’s Prudential Regulation Authority released a supervisory statement saying that banks and insurers must clearly demonstrate they are preparing for climate change now. At the launch, Mark Carney used the term “cognitive dissonance” to describe insurers’ careful management of climate liability risks against their preparations for the physical risks. The governor’s reference to cognitive dissonance was characteristically diplomatic. A rough translation might be: “If you don’t sort it out . . . we will have to sort it out.”

Moves like the London Stock Exchange’s introduction of a new Green Economy classification and associated mark for listed companies and funds that derive 50 per cent plus of their activity from the green economy are positive. But reversing the decision to label oil and gas companies as “non-renewable energy” is, by definition, a reversal. But it is reversing into traffic on a one-way street. However much you play with the words, MsThunberg put it best: “Change is coming, whether you like it or not.”

Emma Howard Boyd is chair of the UK’s Environment Agency

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