Mark Goyder is a senior advisor to the Board Intelligence Think Tank. He’s the founder of Tomorrow’s Company and co-author with Ong Boon Hwee of Entrusted: Stewardship for Responsible Wealth Creation.
“Who cares if Miami is going to be six metres underwater? Amsterdam has been for centuries and it is a very nice place.”
Perhaps you missed the continuing controversy that raged following the speech by Stuart Kirk, HSBC’s head of responsible investing. Perhaps you were distracted by watching the Queen in dialogue with Paddington Bear.
The speech was entitled “Why investors need not worry about climate risk.” Others have accurately exposed the ignorance Kirk displayed of the nature of climate change risk. What strikes me is what the speech tells us about the narrowing of the mind required for the training of a finance professional.
Consider Kirk’s choice of title and the assumptions that it betrays. “Why investors need not worry about climate risk.” To me, investment, like business, is there to serve human purposes. If there is a risk that threatens the lives and livelihoods of millions of people it concerns me. And I am an investor. I worry because I wear many hats. I am also a citizen, a grandfather, a human being who knows that the answer to the question “Who is my neighbour?” goes a lot further than the people who live on my street.
So, of course, is Stuart Kirk the private individual. He has savings and investments. He is a father an individual citizen and a neighbour as well as an investor. (Right now, following his suspension by his employer, he is probably being reminded of this part of his identity.)
Yet when Kirk talks about investors he does not mean ordinary individuals with savings to invest. He means investment intermediaries, people like him who earn their salaries acting on behalf of individuals to make investment decisions on their behalf.
In his mind, the duty of an investment intermediary is somehow separate, different, compartmentalised. He might worry about the effects of climate change as an individual. Yet as an investment intermediary… his only concern is that stock prices rise and his clients get richer.
The whole tone of his speech is that it comes from a sophisticated elite who like to say that they “run money”.
Let’s accept that he really meant institutional investors.
What about us — the ultimate investors? What if we are concerned about climate risk? Aren’t the people who “run money” supposed to be fiduciaries, delivering value to their clients? Some of us have been campaigning since the 1990s to ensure that fiduciary duty is broadened. Our success was reflected in the Law Commission’s 2014 report and guidance to pension trustees. This explained that trustees MUST take account of financial risk from these “non-financial factors” but also that they MAY take account of wider member concerns where these do not adversely affect the investment. Fiduciary duty is about value to the beneficiary and that extends beyond finance.
Kirk’s assertion therefore only makes sense with one, sweeping, assumption — that investment intermediaries can ignore the environmental and social and governance concerns of the ordinary investors they are employed to serve.
That assumption pervades his presentation. Look at the long-run progress of the S&P 500, he says. It has steadily gone up, year after year for the last century. Financially, investors are going to be fine.
Investment intermediaries like Kirk have misunderstood their role and displayed a brutal ignorance of the world.
As Charlie Donovan of Washington University put it in his response to Stuart Kirk:
“By the time everyone recognizes the physical realities of climate change, it's too late. That's because it's not the emissions of greenhouse gases that cause the problem per se, it's their concentration in the atmosphere. Each greenhouse gas has a different residency time, but we're dealing with an average lag of roughly 20 years. If you don't get that, it's hard to understand why now is the only window for climate action.”
How is it possible for a highly intelligent human being to speak as if his world — the world of finance — is at the centre, and everything else is at the periphery?
How is it possible for someone who works in asset management to speak as if he knows what all his clients care about and to assume that his job is limited to maximising their financial return, regardless of consequences?
How is it possible for someone so clever not to recognise that there are risks he doesn’t understand and things he cannot know? Like for example the difference between the discomfort of average temperature rise and the loss of life caused by temperature extremes.
The answer to these questions lies in the way he and those like him were educated.
They have been brought up in a world of sealed compartments. They work in a black box called finance. It is for others to fix Miami once it is six metres underwater. It is for others to worry about Pacific islands where people’s dwellings and livelihoods are permanently disappearing. Human beings are ingenious; don’t worry. They will find a solution.
Charlie Donovan, himself a professor of finance, puts it this way:
“As for the economics, Mr Kirk was perfectly right to say that his training has taught him that climate change is not his problem. ‘The social responsibility of business is to increase profits.’ ‘The purpose of the firm is to maximize shareholder value.’ ‘Firm-specific risk doesn't matter because you can diversify it away.’ I hear it from my finance students all the time. Why? Because they're trained to believe it. Education is the most urgent thing we've got to change.”
And that is what Tomorrow’s Company is now focusing upon. How students in secondary school first learn about business. Not as an isolated money-making playground, but as one vital, entrepreneurial, moving part in the natural, social, physical, and economic system on which we all depend. Tomorrow’s education needs to emphasise our human connectedness — all the way from primary school to the training of finance professionals.