It’s not just the right to abortion, the right to live with one’s sexual orientation, or the right not to be shot at by a pimply-faced hotshot that is being methodically challenged on the other side of the Atlantic. Ethical finance is on the radar of the US Senate.

The Supreme Court has to take a rest... too much excitement for people of their age...

Since 14 June, as reported by Le Monde, the US Senate Banking Committee has been hearing from major fund and asset managers on how they vote at the general meetings of the companies in which they are shareholders. And more particularly the large listed American companies. US senators--and more specifically Republican senators from oil and coal states led by Ted Cruz, senator from Texas--have reproached big investors for being too militant in favour of the environment, social issues or governance. To the detriment of the companies in their constituencies... Larry Fink, the boss of BlackRock, was accused of being a “leftist” and had to make concessions. From now on, BlackRock investors could vote themselves if they did not want the company to do it for them.

Cause and effect? Activist investor pressure on ESG issues is declining in the US. Shareholders are turning away from green petitions submitted by activist investors to the agendas of general meetings. The Financial Times sees this as the growing reluctance of asset managers to tie the hands of executives on climate issues. Earlier this year, BlackRock had already announced that it would vote against climate resolutions that it considered too extreme or prescriptive.

This was exacerbated by the Ukrainian crisis, which put energy security at the centre of the debate.

End of the month versus end of the world

It is not such a ‘philosophical’ challenge that we are witnessing in Europe. The attack is on a different level.

In a context of war, one state after another is reopening its ‘hated’ coal-fired power stations. We are realising that we cannot--at least in the short term--do without carbon-based energy. It seems clear that the climate transition is going to take a back seat to economic realities that are realities of wellbeing and survival. We are re-enacting the “end of the month versus end of the world”. In a way, ESG investments are comfort investments. The kind you make, like purchases, once your priorities have been secured. A bonus.

From this point of view, the appeal made by Thierry Breton, EU commissioner for the internal market, to the German government to extend by “one or two years” the operation of the country’s last three nuclear power stations, which are scheduled to close at the end of 2022, is indicative of this state of mind. For the commissioner, it is essential to “get away from ideology and make sure that we are well aware of today’s needs while keeping in mind the European green agenda, which is absolutely essential”.

There is a disturbing negative connotation to the use of the word ‘ideology’...

The fact that the response of many countries to the repercussions of Russia’s invasion of Ukraine has been to “double down on fossil fuels” is worrying Antonio Guterres, the UN secretary general, for whom more than ever renewable energies are the only future, “the only guarantors of peace in the 21st century” and the only ones capable of combating climate change. He has called for the suspension of all public subsidies and investments in fossil fuels. It is not certain that he will be heard.

On the climate issue, we are faced with more nations in denial than with nations united...

SFDR as a brake on sustainable investments

Let’s give Thierry Breton the benefit of the doubt and bet that this ‘pro-carbon’ episode will be limited in time. The problem is that not everything is simple on the ground for ESG investments.

According to Marc-André Bechet, deputy director of the Association of the Luxembourg Fund Industry (ALFI), the launch of new ESG funds is being challenged by the anti-greenwashing rules hitting the sector. “I have a feeling that we will see a pause in the launch or reallocation of funds, pending further regulatory developments,” he told Bloomberg. He said regulators were on the way to tightening controls on ESG criteria in investments. also argues in favour of this. A tightening up despite the absence of clear rules. The time has come for professionals to comply, particularly in terms of reporting, rather than to launch new products.

The SFDR regulation has been criticised less for its substance than for its form. It is criticised for a lack of clarity and a certain disconnect with other key elements of the EU sustainable finance package. Sector professionals fear that a revision of the regulation will lead to new constraints.

This is what ALFI is denouncing.

And this is not necessarily good for the climate.

This article was published for the Paperjam + Delano Finance newsletter, the weekly source for financial news in Luxembourg.. Read the original version in French on the website.