“How green is your pension?” asked the Financial Times a few weeks ago, opening up a series of issues for readers to consider such as: How are you incorporating your ethics into your personal investment strategy? How are you managing financial, as well as other risks, as you look to the future?
These questions reflect the empowerment narrative that accompanies much of the discussion about politics in the age of financialisation. The saturation of our social and economic lives by financial markets suggests opportunity and autonomy (as well as precarity and instability). In an article that won the 2020 AIPEN Richard Higgott Journal prize, I reflect on the nature of ethics and risk at the intersection of finance and social movements.
The last three or four decades have seen a recalibration of social, political and economic risks. Randy Martin characterised this process as ‘disintermediation’, through which state and non-state institutions become more porous, and responsibilities are dispersed between different actors. This framing of a multidirectional rather than a linear process complicates how we understand neoliberal governance.
Contrary to common critiques of deregulation and privatisation, disintermediation does not imply the retreat of the state. Rather, the state makes space for other actors in both political and economic functions, and the distinction between these actors and their roles becomes more fluid. More social actors are enlisted as risk-managing entities.
Individuals and households are compelled to manage more financial risks associated with pensions and retirement security, health care and education. Another dimension of this same process is that businesses are increasingly called upon to manage risks associated with human rights and ecological well-being. The question ‘how green is my pension?’ brings business ethics and material security together in new ways.
Working people, in their roles as pension fund investors, are invited to think about the ways in which their retirement security impacts, and is impacted by, investments in fossil fuels, for example. Business managers, especially those whose funding depends on stock markets and public confidence, are required to consider the risks associated with child labour in their supply chains, the destruction of Indigenous heritage sites, and failure to adhere to workplace health and safety standards.
As financial, social, ecological and political risks are disintermediated through complex global supply chains, outsourcing of governmental functions, and the reorganisation of social reproduction, risk connects us in novel ways. Privatisation of pensions means that my retirement security is bound up with the success of my investments, which are dependent on the exposure of capital to all manner of risks.
Risk is a technology of governance, risk management becomes a vehicle for political action, and ethical issues are treated as financial risks.
The most glaring example of ethics transformed into risks is that of ESG investing and pension funds. ESG investing integrates environmental, social and governance (ESG) issues into investment decisions. It is a rapidly growing practice. In 2020, $347bn was added to ESG funds and a record $490bn of ESG bonds were issued.
While the proliferation of risk through disintermediation creates new connections, and potentially solidarities, between workers, investors and worker-investors around the world, these relations are fraught with inequalities. The abstraction of risk through ESG integration creates a misleading semblance of equality between the at-risk (those impacted by concrete expressions of risk such as injury at work, or loss of cultural heritage) and the risk-capable (investor).
Coalitions like the Investor Agenda and Climate Action 100+ are focused on minimising the risks and maximising the profit opportunities associated with climate mitigation and adaptation. While abstract risk creates a relation between these risk-capable investors and at-risk populations who are exposed to the impacts of climate change, the parties are exposed to these risks in very different ways, and with very different opportunities to manage those risks.
Investors exposed to workplace health and safety risks in the wake of the Rana Plaza tragedy where 1,134 workers were killed, have taken action to manage those through the Bangladesh Accord with trade unions. Though the relations between firms, workers, and investors in this situation are mediated, in part, by abstract risk, the ways in which the concrete risks are experienced differ markedly between the parties.
Investment decision-making processes render ESG risks fungible and obscures those differences, and the crucial imbalance of power and of consequences for the at-risk (workers) and the risk-capable (firms and investors). ESG investing leverages connections between disparate social and economic actors through the frame of financial risk, in a way that is often stripped of its lived reality.
ESG’s relationship to ethics is often obscured. Many practitioners claim that it is an objective process of risk management, concerned only with financially material risks, not a matter of ethics.
But decisions about which ESG factors are relevant, the weight attributed to those factors, the evidence to use in assessing them, are imbued with either ethical judgments made at the level of the investment firm, or speculations about the ethical standards expected by investor clients and/or the wider community. This is acknowledged in the financial press which complains about ‘wildly diverging standards and inherent biases’ in ESG analysis.
Perhaps more interesting than these questions of subjectivity though is the contingency of the ethics in ESG investing.
Through financial markets, ethical risks become a set of potential exposures. Multifaceted debates about morality, value, and politics are reduced to metrics that can be assessed through a risk-management matrix. Rather than an ethically driven worldview, ESG integration offers a range of exposures to ethical risk, from which investors may choose.
Disintermediation invites ESG investing as a form of governance and an avenue for politics. While there may be opportunities to exploit the connections expressed through abstract risk, ESG investing has serious limitations.
It represents a reductive and derivative basis on which to negotiate our collective interdependence. The limits of the ethical positions that can be taken are constrained by the imperative for profit-making. Framing ethical issues as financial risks also obscures the ways in which ESG risks are lived. While the risk-capable may be able to exchange one fungible investment risk for another, the at-risk live with the real-world consequences of ESG risks.
Cover image by Leonie Woods