HSBC banker who criticised climate ‘nut jobs’ was right about a lot of things

The City’s mania for ‘ESG’ is stifling debate and will stop us from solving the world’s problems

Source - Daily Telegraph - 23/05/22

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Let’s first be clear about what Stuart Kirk, the HSBC executive who has sparked a Twitter witch hunt and is being hung out to dry by his employer for giving a controversial presentation last week, didn’t say.

He didn’t - despite what you might have assumed from the subsequent furore - deny the possibility of man-made climate change. In fact, in his brief talk at a Financial Times event, he specifically said: “I don’t doubt the science at all.”

He also accepted that climate change posed an ecological risk; he mentioned, for example, that the number of forest fires in California is likely to increase and sea levels will rise. And he forecast that the activities of industrial and fossil fuel companies will be curtailed.

Kirk’s apparent heresy was daring to suggest the financial risks posed by those trends might have been overstated. He ventured that central bankers and policymakers are attempting to “out-hyperbole the next guy”. He argued the constant prophecies that humanity is doomed are getting out of hand. And he had the temerity to mention that human beings are really rather good at solving problems and managing change.

More specifically, Kirk said he thought organisations are getting gummed up with the sheer volume of reporting on climate risk. He expressed the opinion that some of the money being spent on financing climate change mitigation could usefully fund ways of adapting to higher temperatures. And he pointed out that the world needs enough bandwidth to deal with plenty more imminent issues - such as the cost of living crisis, interest rate hikes and a looming housing crisis.

His charge that central banks have been so focused on climate change that they’ve taken their eyes off the ball with regard to inflation and economic growth feels particularly close to the mark. One would hope that policymakers can pat their heads and rub their tummies at the same time. But - on current evidence - perhaps not.

However, even if you disagree with these points it’s hard to argue that they are not legitimate grounds for debate and even harder to claim with a straight face that they are so outlandishly beyond the pale that they should be immediately dismissed from consideration. Yet, that’s where we appear to be.

Sure, there was cockiness in Kirk’s delivery. One passage - where he asked: “Who cares if Miami is six metres underwater in 100 years?” - was particularly ill-judged. The point he was groping for is that human beings are pretty ingenious and have, for example, figured out how to cope with the fact that much of the Netherlands is below sea level.

But the answer to his rhetorical question is: plenty of people. If Miami is six metres underwater many other coastal areas will be too. While the developed world might - might - have the financial wherewithal and technological knowhow to deal such an extreme situation, poorer populations will be devastated.

What’s more, it’s a bit rich to say that climate risk isn’t a concern because other dire warnings about the millennium bug and holes in the ozone layer didn’t materialise. The worst was avoided in those cases precisely because the world was sufficiently worried by the threat to mount a globally-coordinated response.

Some of Kirk’s comments were flippant at best and he seems to have fallen into the trap of fighting hyperbole with hyperbole. But does he deserve to be denounced by HSBC’s chief executive Noel Quinn, who has said he doesn’t agree - at all - with the comments or suspended pending an internal investigation?

There’s more than a slight whiff of self-serving hypocrisy in HSBC’s swift disavowal of its own employee. Anyone who knows anything about how banks operate can be in little doubt that Kirk’s presentation passed through an army of compliance officers. Indeed, the FT has reported that its theme and content had been agreed internally.

This strongly suggests HSBC is far more concerned with the fallout from the presentation than its arguments. It would be hard for the bank to refute Kirk’s claim that financial models have too short a time horizon to factor in climate change given it has only just agreed to phase out the financing of coal projects - the filthiest of fossil fuels - by, wait for it, 2040.

HSBC’s behaviour smacks of censorship - not a good look for a bank that has recently been asked by US politicians to explain its actions in freezing accounts of Hong Kong pro-democracy activists. But it highlights a broader problem.

The former head of an investment firm recently told me that he had serious concerns about whether applying non-financial environmental, social, and governance factors to identify material risks and growth opportunities would either provide superior returns or help drive positive change.

He admitted that he could never air those concerns publicly as his board would have eaten him alive. That’s because ESG has become one of the most powerful marketing tools the financial industry has ever stumbled upon.

Money held in sustainable mutual funds and ESG-focused exchange-traded funds around the world increased by over 50pc last year to $2.7 trillion, according to Morningstar. There are armies of index providers, advisers and consultants charging fees off the back of these assets.

So this is not just about one guy’s job or one bank’s hypocrisy. We know free markets are inefficient because they keep getting things wrong. But they are still, in the words of the author and advertising executive Rory Sutherland, “the greatest problem solving mechanism ever devised”.

Indeed, to function properly, they must be allowed to go wrong. The route from defining a problem to finding a workable solution rarely plots a straight line. Capitalism’s greatest achievements tend not to be pre-planned and are only ever obvious in retrospect. They are usually arrived at via myriad dead ends, trial-and-error, unconventional thinking and a not insignificant amount of luck.

And yet ESG often gets dangerously close to professing a single true path. Nothing could more clearly demonstrate the intellectual deficiencies and slender foundations of this orthodoxy than its inability to brook challenge or debate. More importantly, it’s hard to think of a more certain route to failure than a one-eyed, monomaniacal focus on an unvarying set of preconceived values that scares everyone into conformity or silence.