As we wrap up this year’s PRI in Person in Toronto, it is difficult to remain as skeptical as this column tends to be. As always, the PRI delivered a well-organised event and fantastically curated program. It is intense, mind you. These past three days were filled with a mix of inspiring plenary sessions and breakouts with no less than six parallel tracks, without forgetting the intense networking breaks and side events. One could easily be gripped by FOMO if it weren’t for the opportunity to catch up digitally.
Most participants agree that it is worth the journey. Getting together in the same location multiplies the opportunities for learning, exchanging and initiating long-term collaborations. It also allows to put things into perspective. Coming from the Nordics, we are sitting in our bubble and often quick to judge. We’ve all observed from our mighty seats how the political war against ESG has been raging across the Atlantic. But what does it mean in practice? This conference provides the perfect occasion to find out whether there is more to the North American appetite for sustainable investing than meets the eyes.
First, some context. Ever since I have attended sustainable investing conferences, I have heard panels debating whether ESG is appropriate from a fiduciary duty’s perspective. In Sweden, it is not even a thing. Asset owners don’t skip a beat before producing a positive answer. In part, we have the government to thank for it (as sustainability is part of the AP fund’s mandates, for example); in part, the business culture is such that the environment, social concerns and governance have been embedded in discussions for a long time, even outside of investment considerations. In the US, the culture is, instead, fully dedicated to profit maximization and naturally, fiduciary duty is typically framed as an obligation to optimize investment returns given a reasonable level of risk. Thus if it cannot be proven that ESG enhances risk-adjusted returns, it is deemed irrelevant. Or so claim its detractors.
This ESG debate has come to the forefront in 2023 when it became a political acronymus-non-gratus. Anti-ESG regulations and even mentions of industrial collusion proved chilling for the less brave among sustainable managers who scurried away from collective engagement initiatives such as Climate Action 100+. The legal system is, indeed, an aspect of business life that differs substantially between Sweden and the US where any claim needs to be substantiated and disclaimer-ed at length. On the other hand, most Swedish managers will think trice before claiming they are doing anything they are not absolutely sure they are, whereas elsewhere – not the least in North America, the marketing team is quick to find a way to highlight any possible competitive advantage and turn it into an attractive pitch. Horses for course.
It is with this backdrop in mind that I was pleasantly surprised to find out how North American investors are fighting back the ESG backlash with pragmatism, legal disclaimers and the notion of materiality. “With materiality, the concerns about fiduciary duty go away,” a participant told me. Could the solution to greenhushing be green learning? Indeed, the conference’s program allowed us to see that it is in the details that investors will find comfort. If ‘ESG’ has been vilified, climate change remains a concern, brought to attention as recently as this past week. “Given what’s happening in Florida right now, we can’t just go on ignoring our responsibility,” another attendee said. Social issues are also prevalent for US investors who face regular pressures on DE & I and have to confront mounting social inequalities on a national level. As one panelist put it, if the responsibility of an asset owner is to invest in the economy, then they know that one company’s misbehaving with regards to minimum wages will have negative repercussions on the community, which will eventually hurt returns of other investments.
These are only a few examples of how the specifics can inform the overall debate. And because we cannot attend all sessions, the idea exchanges that happen both through deliberate and serendipitous encounters are crucial to our understanding of the big picture. Unlike Artificial Intelligence, which can process an incredible amount of information in record time, our brains can only do so much at once. What I take away from Toronto is the catalytic effect of cumulative conversations. Taking arguments from one person to another has allowed me to piece together a picture that is at least somewhat surprising. “If you had discovered anything new, would you choose to disclose it at the PRI in front of 2000 people?” someone asked me. It is perhaps not unexpected then, that no one I met said they had heard anything they didn’t already know before. Well, perhaps that’s the thing: people aren’t going to do your job for you. Talk to each other and help each other understand the value of sharing different perspectives. Like ‘circular thinking’, let’s recycle old ideas, put them together and understand something new. That’s what we look forward to doing in Sao Paolo for the PRI in Person 2025.
