Our recent Moral Money Summit in London featured a wide range of perspectives from dozens of speakers — but one voice in particular made waves far beyond our conference room.
The remarks by HSBC’s Stuart Kirk dismissing climate risk as a serious concern for investors have prompted outrage. Critics have called Kirk’s comments morally repugnant, and a shocking example of financiers’ complacency on climate change threats.
But as I argue below, the speech — which you can watch here — has highlighted important issues that need more discussion, as uncomfortable as it might be for some in the financial sector.
As part of that discussion, we want to hear your views. What does the Kirk imbroglio mean for the sustainable investing agenda? Give us your take at [email protected]. (Simon Mundy)
The awkward grains of truth in Stuart Kirk’s ESG takedown
“There’s always some nut job telling me about the end of the world,” said Stuart Kirk, HSBC Asset Management’s head of responsible investing (and a former FT journalist), in a talk arguing that investors need not worry about climate risk.
Kirk’s remarks sparked widespread condemnation — including from senior executives at HSBC. The bank has suspended Kirk pending an investigation, despite the fact that his presentation had been approved internally. As the controversy over the speech continues to swirl, what has this episode told us about environmental, social and governance investment and the debate around it?
For one thing, it has underscored the intensity of the ESG culture war. To former UN climate head Christiana Figueres, Kirk’s words constituted “one of the most irresponsible public statements we have heard in years”. Commentators on the right, in contrast, hailed him as a hero for eviscerating “doomster climatism”, and said his suspension by HSBC was evidence of the suffocating influence of the ESG lobby.
It’s also a powerful new piece of evidence for those who believe there is little substance behind the financial industry’s lofty pledges on climate action. “Once the veil is removed, you can see truth,” said Mark Campanale, head of the think-tank Carbon Tracker, arguing that Kirk’s talk had exposed “the values at the heart of the banking system”. When HSBC says the views of its head of responsible investment have nothing to do with the company’s views on responsible investment, one has to wonder how much thought went into that appointment — and how hard they are thinking about the wider issues at hand.
Many of Kirk’s critics were repelled by the jocular tone he used in describing climate change’s impact, which has already wreaked a terrible toll in life and property. “Who cares if Miami is six metres underwater in 100 years?” he said — a line that went viral, along with his complaints about the amount of work he had to do on climate-related financial regulation.
But he also touched on some areas of legitimate debate. Kirk’s speech included some sharp accusations of what he called hyperbole around climate change — including from an earlier speaker, Deloitte chair Sharon Thorne, who had warned that there would be “no jobs on a dead planet”. Such a scenario appears in no Intergovernmental Panel on Climate Change report. Is this sort of poetic licence truly helpful to the drive to galvanise climate action? The conversation is worth having.
What of Kirk’s attack on “annoying” central banks, which he accused of deliberately designing climate stress tests to produce alarming results through projected interest rate shocks and gloomy economic forecasts? I discussed that with Huw van Steenis, whose 2019 report for the Bank of England lay the groundwork for climate stress tests there and at other central banks.
Van Steenis said that Kirk had mischaracterised the results of the stress tests, which he said indicated moderate risks for banks — indeed, the head of the BoE’s Prudential Regulation Authority last week explicitly described their potential losses as “absorbable”. It is appropriate for central banks to model for big interest rate cuts under grave climate scenarios, van Steenis added. But “reasonable people can disagree” on how big those modelled rate cuts and potential bank losses should be, a debate that needed to be had, he said.
By far the most crucial area of debate highlighted by Kirk’s speech, however, is around his core thesis: that climate change is not a big source of investment risk. Among his most controversial moments was his dismissal of climate-related risks that would materialise decades hence. “What happens out here,” Kirk said, gesturing on a chart at the middle part of this century, “from a financial risk perspective, it’s irrelevant.”
That remark might sound perverse, given that the financial costs of extreme weather events are already rising conspicuously. Natural disasters caused losses of $280bn last year, according to Munich Re.
And yet Kirk’s point on investors’ approach to climate risk — that they are not paying much attention to it — is one that many green-minded financial types reluctantly agree with. The prime exhibit is the oil and gas sector, where surging valuations reflect expectations of huge hydrocarbon profits for years to come. ExxonMobil’s share price has risen 66 per cent in the past year and is on the verge of a record high.
“When European oil and gas majors announce big net zero targets, you’ll look at the stock price on the day of the announcement and often it doesn’t change — there’s no uptick, or downtick for that matter,” said Luke Sussams, an ESG analyst at Jefferies. “There is certainly some form of cognitive dissonance there. The capital markets remain, at the systemic level, very short-termist.”
The light-hearted tone of Kirk’s speech has made it easy to condemn him, and for his employer to cast him adrift. But his sardonic observation on investor behaviour — “the more we’re doomed, the higher prices go” — is worth reflecting upon. It is a harsh fact that, as things stand, financial markets have not been treating climate risk anywhere near seriously enough to pump sufficient capital towards the investments needed to tackle the crisis, and away from those that are driving it.
That is not because investors are ignorant of the dire threats that climate change presents to human life and wellbeing. It is because the current rules of the financial game still do not give sufficient incentives for them to shift their behaviour.
Kirk made clear he thinks governments have it in their power to change this situation quite dramatically, with a “whopping great carbon tax” that would make this area of risk look very real indeed for investors in carbon-intensive industries.
For now, in the absence of such ambitious policy measures, and for all the rousing words from the heads of institutions such as HSBC, the financial sector is far from treating climate change with the seriousness it deserves. It might be tempting — and, for many, convenient — to dismiss Kirk’s tone-deaf speech in its entirety. But on that important point, he was right. (Simon Mundy)
Chart of the day
Our colleague Andrew Edgecliffe-Johnson has a Big Read out about the war on “woke” capitalism. He reports that Republicans’ trust in big companies has dropped sharply as rightwing activists are working to reverse many of the changes made under the banners of ESG and stakeholder capitalism.
And for a final dose of ESG scepticism, please read our colleague Tom Braithwaite’s column on a pivot to bullshit. “The BS Index™ outlined here represents a sustainable revenue stream as we finally turn this infinite resource into a tradable asset class.”