(Bloomberg) — Mark Carney to Brookfield Asset Management. Brexit architect Nigel Farage to DGB Group. A senior Obama aide to BlackRock Inc.
One after another, the high-profile hires came in recent months, and in each case, they were handed some iteration of the same mandate: To help their new employers safeguard and grow their burgeoning green-finance businesses.
The sudden rush to embrace political insiders is a powerful sign of just how far responsible investing has come from the eccentric fringes of finance. While business has long been a path into politics and out again, joining a company that plants trees to offset emissions was once a risky career move. Yet so much money — more than $30 trillion by some counts — is now tied up in green finance that the industry is successfully wooing an illustrious list of household names and policy wonks to keep lawmakers in London, Brussels and Washington on their side and the good times rolling. Other recruits include Chuka Umunna, Farage’s one-time arch Brexit opponent, and Luciana Berger, another former U.K. parliamentarian.
“They’re not hiring these politicians because of their expertise on finance and economics — they’re hiring them on their expertise on influencing policy, both their connections to people in government and knowledge of how to game the system,” said Simon Youel, head of policy at Positive Money, which campaigns to reform the banking system. “This revolving door is enabling big institutional investors and corporations a disproportionate impact over policy making.”
While angst over climate change helped build this cash cow, it’s politics that will determine whether the industry’s next decade sees it ossify or take in trillions more dollars. From the U.S. to China, governments are designing rubrics, drawing up standards and creating regulations to define what counts as “green,” reshaping the landscape for the banks and money managers that dominate this world, and unsurprisingly want to influence the outcome.
Bondholders are already wising up to signs that companies are exaggerating or misrepresenting their environmental chops when selling debt, a practice known as greenwashing. Questions are also multiplying around the impact of carbon credits, embraced by corporates to slash their environmental footprint. And the financial-services sector itself has been criticized for funding fossil-fuel producers. With mainstream banks now recruiting well-known faces to promote their brand of green finance, the industry’s feel-good veneer could crack.
“Because of the effectiveness of the green-finance agenda, it tends to have more supporters than critics,” said Adrienne Buller, a senior research fellow at the Common Wealth think tank, which focuses on building a sustainable economy and counts former U.K. Labour Party leader Ed Miliband among its directors. “There’s a few people calling out instances of greenwashing, but the response tends to be ‘we need to root out greenwashing so green finance can do its job’ rather than taking a critical look at green finance as a whole.”
ESG — as adhering to environmental, social and governance principles is known — is now big business. So it’s in the interests of banks and asset managers to get a little political in their hiring, even with the heightened scrutiny applied to such relationships in the wake of former Prime Minister David Cameron’s lobbying for collapsed lender Greensill Capital.
While discerning the direct impact of this hiring spree on legislation is fraught with difficulties, the influence of finance and business over green policy is already making some queasy.
“We’re seeing a lot more sustainability legislation going into financial regulation today and of course some people are trying to wind that back so it’s not as strong,” said Fiona Reynolds, chief executive officer of the United Nations-backed investor group Principles for Responsible Investment. Change is still happening but “there has to be strong rules in place and transparency,” she said.
The European Union’s watchdog ruled in November that the European Commission failed to fully consider conflicts of interest when it appointed BlackRock to advise on new sustainable-finance requirements for banks. The firm’s segregation of its advisory arm from its investing unit wasn’t enough to prevent staff from being influenced by the general strategic interests of the company, an ombudsman wrote; BlackRock oversees billions of dollars in green funds as the world’s largest asset manager. The EC pointed to the technical quality of the firm’s pitch to support its choice.
And in the U.K., the government is preparing to issue the nation’s first sovereign green bond after a parliamentary push spearheaded by Gareth Davies, the former head of responsible investment at Columbia Threadneedle Investments who’s now a member of Parliament for the ruling Conservative Party. In 2019, the same year Davies was elected, Columbia Threadneedle wrote a letter urging the U.K. government to issue green gilts.
“You would expect the level of engagement to be high and I don’t think anyone should apologize for having ongoing discussions about that,” Davies said in an interview. “We recognize the power of the finance sector to solve some of the problems the government is trying to fix. It’s not because we’re trying to get more influence for the financial-services sector.”
Green finance’s highest-profile hire to date is Mark Carney, the former Bank of England governor and long-time advocate for sustainable investing. He joined Brookfield last year as head of ESG, with CEO Bruce Flatt saying at the time he would be instrumental in expanding the firm’s ESG group because of his strong relationships with sovereign wealth funds and his range of business experience.
Carney has since persuaded banks, including Morgan Stanley and Citigroup Inc., to sign a plan to cut emissions, and his work straddles the private and public sectors. He currently serves as U.K. Prime Minister Boris Johnson’s finance adviser for the COP26 meeting to be held in Glasgow in November, making him an important voice at the United Nations climate talks. And on top of that, he’s a leader of the Taskforce on Scaling Voluntary Carbon Markets, an effort to set up a global trade in carbon offsets for the private sector.
A more unlikely convert is Nigel Farage, a skeptic on climate change when leader of the UK Independence Party, who recently joined a Dutch firm involved in carbon offsetting. His role is “to facilitate introductions to politicians and business leaders in the U.K. and around the world,” according to a company press release.
“From a PR point of view, he’s a headline machine,” said Selwyn Duijvestijn, chief executive of DGB Group, Farage’s new firm. “Texas oil workers, they don’t listen to Greta Thunberg, but they do need to become aware that we need to do something,” he said in an interview, referring to the teenaged climate activist. “They would rather listen to Nigel Farage than Greta Thunberg.”
On the other side of the political spectrum, Chuka Umunna, Farage’s one-time sparring partner during the U.K.’s prolonged withdrawal from the EU, became JPMorgan Chase & Co.’s head of ESG for EMEA earlier this year. Umunna arrived after a short stint co-heading Edelman’s ESG consultancy following almost a decade in Parliament. A bank memo at the time said he would help clients “successfully navigate the evolving ESG landscape.” Meanwhile, Umunna’s former colleague Luciana Berger is the incoming chair of used-car seller Cazoo’s ESG committee. Cazoo declined to comment beyond an earlier statement.
It’s not just a European phenomenon. BlackRock recently replaced one departing White House insider with another. Paul Bodnar, an Obama-era climate-policy aide, is now the firm’s sustainable investing head, taking over from Brian Deese, who returned to politics as President Joe Biden’s National Economic Council chair. The firm has hired more than a dozen alumni from the Obama administration over the years.
Where once it was electorally advantageous to take a tough line against bankers, such as in the wake of the 2008 financial crisis, the finance industry has worked hard to rebrand itself as an agent of change, crucial in the transition to a lower carbon economy. That’s made it easier for politicians, particularly those with more progressive or center-left positions, to join their ranks.
There will be no shortage of opportunities in years to come. ESG assets are on track to almost double to $53 trillion by 2025, according to Bloomberg Intelligence. And while banks still earn more from lending to fossil-fuel companies than marketing sustainable bonds, going green has other benefits, not least sating the activist shareholders, regulators and tax collectors pressuring the finance industry to clean up its act.
“When policy makers leave for big banks or other investment institutions to take care of ESG, that’s very welcome to the financial sector,” said Kenneth Haar, a researcher at the Corporate Europe Observatory, a Brussels-based public-interest group. “More than anything they need to be seen as institutions which take climate change seriously, and they need a friendly face to sell that idea.”