Environmental, social, and governance standards have been in the spotlight lately, with a German police raid of asset manager DWS and signs that the draw of coal is too much for some countries amid skyrocketing energy prices. Is this the end of ESG, or a new, more tailored beginning?
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Last week’s raid of DWS, a unit of Deutsche Bank, is raising questions about the issue of “greenwashing.” The company is accused of misleading investors about the green credentials of investments. DWS denies the claims.
• This all comes as John Kerry, the U.S. climate envoy, urged countries to stick with goals they made at COP 26, despite the war in Ukraine and soaring energy prices, which have pushed a number of nations to dig into coal. In the short term, there are private sector concerns about competitiveness, as companies looking to go green must compete with coal-fired rivals.
• Dylan Tanner, the executive director at InfluenceMap, tells me the use of top-line ESG ratings may have “run its course.” The think tank last year identified 593 equity funds in the broad ESG category with over $265 billion in total net assets — but 71% fell short of the Paris climate goals.
• The now-ubiquitous term ESG only really came to prominence in recent years. Tanner says the sector grew quickly, but regulations have not kept up. For example, there is no agreement on what codifying terms, such as “green” and “sustainable,” really mean.
• “The bulk of what's being labeled by the media and others as ESG funds, they're just tweaking the index to just do very minor adjustments and no demonstration of impact,” Tanner says. Measuring impact, along with clearer definitions, are areas for improvement.
• Harald Walkate, the founder of independent ESG advisory Finding Ways Ahead, says this may be a new dawn. “Many of the recent developments are pointing in the direction of a new chapter for ESG — one where we are more focused on objectives and evidence-based approaches to get us there,” he tells me. For investors, the best way forward is to clarify their own motivations so they can best measure impact. “Only if you know what you want to achieve can you pick the right tools as well as metrics to measure if you’re getting anywhere,” Walkate says.
+ We’d love to hear from you. Tell us what you think about the future of ESG, and you may see your response in a future edition of Invested.
Love it and leave it?
The U.K. thinks the International Development Association, the World Bank’s fund for the lowest-income nations, is “good value for money,” my colleague Will Worley reports. The only catch: The country’s funding to IDA was reduced by around 55% — an estimated $1.8 billion — as part of the recent cuts to its foreign aid budget. As I reported in December, IDA secured a $93 billion replenishment package — a record haul — but the number still fell short of expectations, in part because the U.K. lowered its support levels.
As Will notes, the British government is likely not yet done cutting either, having just announced last month it would reduce its multilateral spending in favor of more bilateral projects.
Read: UK aid to World Bank praised as FCDO set to cut multilateral spending (Pro)
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Warning signs
Sri Lanka is in the midst of a human-made crisis with no end in sight. The onetime darling of aid donors is seeing inflation soar, with lengthy lines for fuel and shortages of medicine and other basic goods on the rise. An IMF mission to the country last month concluded that public debt is “unsustainable.”
Where did it all go wrong? Experts point to the Rajapaksa dynasty, years of heavy borrowing and corruption, and an economy structurally built to serve one ethnic group. There is a widespread expectation of more pain for the people of Sri Lanka. But what does this mean for other parts of the globe?
Experts are hesitant to predict a domino effect, but the World Bank is warning that up to a dozen countries may default by mid-2023. It’ll be up to wealthy creditor nations across the G-20 to help prevent a massive backsliding on development for these distressed countries.
Sri Lanka: How big is its mess, and is there a way out? (Pro)
Healthy energy
An estimated 100,000 public health care facilities in sub-Saharan Africa lack access to the reliable electricity needed to provide quality care — but energy companies consider them risky customers, writes my colleague Sara Jerving. To ensure payment, experts say more financial guarantees are needed.
Read: Turning health clinics into appealing customers for the energy sector (Pro)
+ Join us: On June 9 at 9 a.m. ET (3 p.m. CET), Devex will host a Pro Live event on USAID’s largest-ever suite of contracts — Beyond NextGen: Solving the challenges of health supply chains. Register now.
What we’re reading
Opinion: De-risking is key to closing the global funding gap. [Devex]
Palladium sells majority stake for $224 million. [Devex Pro]
+ What we’re watching: BlackRock doesn’t want to be environmental police, says CEO. [Bloomberg]
About the author
Shabtai Gold
Shabtai Gold is a Senior Reporter based in Washington. He covers multilateral development banks, with a focus on the World Bank, along with trends in development finance. Prior to Devex, he worked for the German Press Agency, dpa, for more than a decade, with stints in Africa, Europe, and the Middle East, before relocating to Washington to cover politics and business.
