Corporate leaders open up about E.S.G.
At a cocktail party this week in Davos, one executive told DealBook something he — and most of the attendees at the World Economic Forum — would most likely never say in public: “I hope E.S.G. just goes away.”
The executive, whose company is involved in the carbon industry, clarified that he still believes that it is vital to focus on climate, but that environmental, social and corporate governance — as the business approach is formally known — has become too broad and distracting. He’s just one of many executives who have talked to DealBook about coming to terms with how politically charged E.S.G. has become, and about how to deal with it.
Have executives overpromised on E.S.G.? Fixating on lofty goals, without delivering on actions, has made business leaders vulnerable to a backlash, executives said. As evidence, some point to BlackRock’s Larry Fink, one of the earliest and most vocal proponents of E.S.G., saying he’s trying to “change the narrative” after taking fire from the right, and despite the fact that the asset manager still has investments tied to fossil fuels. The elevated messaging, and the pushback to it, has also obscured what supporters of the movement say are the real financial considerations of E.S.G., like what climate change means for a real estate business.
One finance executive compared the current “Davos era” approach to E.S.G. with other once-popular management philosophies, like the Six Sigma system embraced by the former G.E. boss Jack Welch. While investing with purpose probably won’t go away, the executive at Davos said, this particular flavor of E.S.G. may.
Executives worry there’s an overemphasis on measurement. Debate over which yardsticks to use to measure E.S.G. achievements like carbon-emissions reduction has become a distraction, some said. Worse, it can lead to so-called greenwashing of a business or investment.
Global bosses think the E.S.G. backlash is an American phenomenon. Many of the executives at Davos say the politicization of the approach is largely contained to the U.S., reflecting the country’s deep political polarization. After all, Europe has embraced E.S.G. to a far greater extent: One executive of a publicly traded green biosciences company told DealBook that European investors want to plumb more deeply into his company than their American counterparts and that their questions sometimes double the length of his meetings with them.
The stakes are high. E.S.G. investing is one of the fastest-growing segments in finance. PwC forecasts that asset managers will increase their E.S.G.-related assets under management to more than $34 trillion by 2026 from $18 trillion in 2021 as the investment boom becomes more mainstream.
Elsewhere in and about Davos:
HERE’S WHAT’S HAPPENING
The U.S. is set to hit its $31.4 trillion debt cap. Reaching the congressionally imposed borrowing limit will force the Treasury to deploy a range of accounting measures to ensure that the federal government can pay its bills.
The C.E.O. of Aramco worries China’s reopening will strain global oil supplies. A pickup in demand could leave the world vulnerable if there’s another shock like the war in Ukraine, according to Amin Nasser. “We should be worried about the mid to long term,” he told CNBC.
France hit by crippling strikes. Teachers, rail workers and more hit the streets to protest the government’s proposal to raise the retirement age to 64 from 62. President Emmanuel Macron said the change was vital to shoring up France’s public finances, but unions are expected to announce further action.
Texas accuses Citigroup of “discriminating” against the gun industry. The bank has run afoul of a state law banning companies that have anti-firearm policies from holding government contracts, according to the state’s attorney general, Ken Paxton. That finding will prevent Citi from participating in one of the biggest markets for municipal bonds in the U.S.
Elon Musk’s lawyers say he hastily posted his 2018 “funding secured” tweet. In opening arguments of a trial over the billionaire’s aborted attempt to take Tesla private, his lawyers said he made a “split-second” decision to say that he had financial backing for his bid, worried that details of his effort would leak. The claim is meant to show that Mr. Musk didn’t intend to mislead the market.
A crypto lender on the brink
A stunning rally in Bitcoin, Ether and other tokens in recent days looks unlikely to save one of the crypto industry’s biggest lenders, Genesis. The company is preparing to file for bankruptcy protection as soon as this week, according to news reports.
Genesis has struggled for months. The collapse of the hedge fund Three Arrows Capital and of FTX, Sam Bankman-Fried’s crypto exchange, as well as the stunning drop in crypto asset prices that came after, pushed the lender to the brink.
Genesis — whose parent company, Digital Currency Group, is also under pressure — froze customer withdrawals in November and recently laid off 30 percent of its staff. It reportedly owes creditors over $3 billion.
Adding to Genesis’s woes, the S.E.C. has accused it of selling unregistered securities in a case involving its onetime business partner, Gemini, the crypto trading arm run by Tyler and Cameron Winklevoss.
Elsewhere in crypto:
The Times takes a look at how Mr. Bankman-Fried encouraged the development of so-called Samcoins to gloss over FTX’s financial health.
Peter Thiel’s Founders Fund reportedly cashed out an eight-year bet on crypto shortly before the market crashed last year, for a $1.8 billion return, according to The Financial Times.
“You cannot and should not do it unless you have a full tank plus a bit in reserve for those unexpected challenges.”
— Jacinda Ardern, who said she would step down as New Zealand’s prime minister by next month. She became a global liberal icon for her handling of the coronavirus crisis, but faced an uphill battle in the upcoming election.
A sour taste at Sweetgreen
It’s a tough time for companies that rely on office workers and for some, like downtown lunch spots that cater to professionals, flexible working could pose an existential risk (despite the efforts of some C.E.O.s).
Sweetgreen, the fast-casual salad chain, is feeling the pain. Its stock has fallen by more than 60 percent in the past 12 months. It noted the effect of the shift in working practices in its third-quarter earnings report in November. Inflation is also making its expensive lunches even more expensive, pushing the cost of a Cobb salad to around $14 in Manhattan.
Will business come back? CBRE, the commercial real estate firm, says the role of the office is changing permanently. A survey of big office tenants found that 71 percent of respondents were looking to expand hybrid working arrangements in the next three years.
Can an online push replace in-person sales? Analysts are still bullish on the company because it has moved to build digital sales and loyalty. In the third quarter, 60 percent of Sweetgreen’s orders were made through online channels, compared with 37 percent at Chipotle and about 40 percent across Yum Brands, and Sweetgreen is piloting a subscription service.
Mitch Reback, Sweetgreen’s chief financial officer, has noted that the “erratic urban recovery” caused a “sales growth lag” and laid off 5 percent of its work force last year. But he said he remained “confident” that downtown locations would recover.
Will the digital push come fast enough?
THE SPEED READ
The fast-fashion retailer Shein is said to be raising new money at a $64 billion valuation, down sharply from its current $100 billion level. (FT)
Efforts to sell Global Switch Holdings, a data center company, are reportedly near collapse over bidders being unwilling to pay $10 billion. (Bloomberg)
Party City, the embattled retailer for festive goods, has filed for bankruptcy. (WSJ)
American authorities arrested the Russian co-founder of the crypto exchange Bitzlato in Miami, accusing him of catering to “known crooks.” (Reuters)
A man accused of fraud tied to the New Jersey deli once valued at $100 million has been arrested in Thailand. (Bloomberg)
Donald Trump has officially asked Meta to restore his Facebook account. (NBC)
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