What Stuart Kirk could have said …

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I’ve realised that, when working in Responsible Investing, you can burn up an awful lot of energy and time responding to the same old tired arguments again – time that’s usually better spent elsewhere.

That’s why on Friday when the video emerged of HSBC AM’s head of responsible investing Stuart Kirk’s now infamous FT speech , I decided to keep focusing on training my colleagues on the basics of Net Zero, developing a plan to take Net Zero to clients and integrating Net Zero into our consultancy advice which are my current priorities.

However, after your amount of social media pings, dings and “have you seen this” messages from colleagues I can say that my wife was utterly delighted when I informed her I’d be carving out a portion of the weekend to try and thoughtfully address it. So on a sunny Sunday afternoon, here we are.

As I see it there are four core components to Mr Kirk’s 16 minute address :

– A familiar “hot mess of thinly argued denialist talking-points “ (like a spectator column, but with more charts says James Murray)

– A couple of sort-of-flabbergasting borderline offensive statements, presumably designed to attract attention (clearly it worked)

– A handful of points that could have been legitimately useful talking points, had they been more constructively presented

– A sneering, pejorative, some might say nasty, tone (“I’ve got a beard, it’s my one sop to responsible investing”)

Let’s dive in –

The core message was that broadly, climate change isn’t a financial risk because of a combination of: it’s already priced in, markets always go up, we’ll be rich , we’ll be innovative enough to solve it and that previous bad predictions have never come true.

There’s nothing really new here, it’s the same old arguments, tired strawmen, disinformation and false dichotomies we’ve been dealing with for a decade or more. But anyway …

“Climate change isn’t a risk because previous bad predictions have never come true”. I mean, it’s a little simplistic to put it mildly isn’t it? The future can indeed be different from the past. Not sure how many previous systemic climate crises he studied in order to get to that conclusion. Anyway, things that helped mitigate previous systemic risks including y2k and the Ozone hole were people working together well in advance , global co-ordination and support from key institutions, exactly what’s on the table for climate risk today. Just because risks were succesfully mitigated in the past doesn’t mean they can be ignored in the present, if anything history should teach us the opposite.

Yes but , “we’re rich, we’re innovative”. Sure, and yes, I’d love a world where we innovated our way out of climate risk and I’m sure more RI professionals would too. It could well happen. But is it the sole outcome you want to bet everything on? Because naive optimism can be very dangerous in seducing you into carrying on as normal and doing nothing different. It’s not either/or; we can do all we can today with known mitigation approaches and we can work toward technological moonshots. Don’t forget the scientific consensus is that the available carbon budget will be exceeded in about 8 years, so there is very little time to invent and scale new tech.

“But it’s priced already!” I think this is one of the core points Mr Kirk was getting at, although it’s a bit confusing as he seems to simultaneously argue that the market ignores climate risk (a chart of the S&P overlaid onto a count of climate risk mentions … I mean, please. If that’s what passes for research over at HSBC AM then maybe they do have bigger problems than climate risk) yet alongside this he also argues the market fully prices it and so it’s all upside from here. Setting aside the fuzzy logic of whether he’s arguing the market ignores climate or fully prices it (can’t really be both) there are some points to pick up here.

Invoking the efficient market hypothesis isn’t an excuse for laziness ** waves hands / shrugs shoulders ** >> “it’s ALL priced in so “… not least because Mr Kirk alongside hundreds of thousands of others work in the $100trn funds industry which – last I checked – rests pretty heavily on the EMH NOT holding at all times and in all places.

But the market pricing point is indeed absolutely key to this and an important and legitimate talking point (I discussed this more here) . Had Mr Kirk thoughtfully addressed the question of market pricing of climate that would have been a fine topic for the talk. Indeed the likes of MSCI and Schroders have both recently published real, in depth work looking to ask and answer that question honestly that result in nuanced answers across sectors and through time could be constructively discussed and built on. But here we start to perhaps see Mr Kirk’s aim. He’s not interested in an evidence-backed constructive discussion, he’s trolling for attention with the thinnest of arguments (climate mentions plotted against the S&P, I mean, come on. That is not real work).

The fact that the S&P goes up and to the right in a 100-year log chart absolutely does not mean climate change isn’t a financial risk. That chart hides all sort of crises, generational bear markets, bankruptcies, failures and wealth destruction . The S&P probably will be higher in 100 years, but we could still have seen avoidable wealth destruction from climate risk.

There was a bit of a segue into long-run GDP models , I mean look, we all know year 2100 GDP forecasts have huge confidence intervals on them whether climate driven or otherwise. But the financial elements of climate risk don’t hinge on that, we don’t have to rely on models going out anywhere near that far to see the risk. Plenty of transition risks, carbon pricing possibilities to navigate in the next decade.

Mr Kirk does allude tangentially to another common point which I think many have missed: Financial factors can’t be isolated from broader considerations in anything like as neat a way as many would have. The financial sector is not divorced from the economy and society, existing in some isolated, hermetically sealed niche. It’s embedded fundamentally into the economy with two way impacts and the financial sector is an influential grouping of institutions in its own right. Any factor can easily get financialised through customer behaviour, supplier behaviour, and the provision of capital. There is now a significant body of investors who chose to look at their investments in ways beyond just what shows up on a spreadsheet.

There were also a few outright falsehoods, but I’m going to move on as I’m running short on time.

The two really offensive points are the ones that led the headlines (and were presumably calibrated to do so): “who cares if Miami is 6m underwater” and “what happens to the planet in year 7 is irrelevant” . I won’t address these as I’ve learnt the hard way you don’t argue on the trolls’ terrain. Just to say there’s an inherent disregard for human life/suffering and a degree of entitlement & privilege baked into such glib comments that’s distasteful at best and toxic at worst. I do care if Miami is underwater, any decent human being should. And that isn’t even the most pressing of physical risks – heatwaves and crop failure in some of the world’s most populous countries ought to worry everyone. “I’ll be fine as an investor” smacks of selfishness and arrogance.

Right, let’s talk some of the actual points that Mr Kirk could have made a decent discussion out of, I counted three.

There’s too much reporting in Climate Risk. This is a fair challenge. There is a vast amount of paperwork involved today for responsible investors (PRI, Stewardship Code , TCFD , Net Zero , implementation statements plus a huge array of surveys and data requests). This merits a proper discussion. Perhaps Mr Kirk has some constructive thoughts on how these worthwhile initiatives could align stemming from his experience leading a responsible investment team? Maybe he has some hard stats on the resources involved and ideas for where these could be better spent? Nah, just a vague rant about “the amount of work these people make me do”.

There’s not enough focus on adaptation. I couldn’t agree more, there needs to be far more. I think few thoughtful responsible investment professionals would disagree here, but it’s presented as a false dichotomy: we can focus on both adaptation and mitigation and risk just the same as we can walk and chew gum.

There’s too much focus on climate risk. The question of calibrating the resource on big systemic risks relative to others is a fair question to ask – I think every responsible investment professional should want the focus on climate risk to be right sized as if it gets out of proportion it actually puts at risk the responsible investing movement in the long run (“the market crashed while you were all focused on climate, you’re fired” is not something any of us want to see). But here again we’re back to walking and chewing gum. HSBC is a vast multinational firm with enormous resources: almost a quarter of a million staff and over $14bn of revenue. Mr Kirk mentions inflation and crypto. I would certainly hope HSBC has many smart people working in these areas and I don’t doubt that they do. With a quarter of a million workers you can allocate people to address big challenges and systemic risks. It so happens that Mr Kirk’s “beat” is responsible investing and for the time being that includes a big focus on climate risk. He’s HSBC’s chosen point-person on these issues. Thinking about climate risk is his actual job, so these are odd complaints to be making.

Had Mr Kirk been presenting real data on the split of HSBC’s resource requirements on different systemic risks that could have been interesting , over half of fund managers tell us that at least 5% of their staff are RI experts these days. A decent proportion of those will be on climate risk. Does it seem excessive? It’s an issue that’s been under focused on for 20 years, so how do you calibrate the right level today.

Overall my feeling is of this as a missed opportunity . Mr Kirk had a real platform at a big conference (presumably paid for by his employer) where he could have engaged robustly and constructively on any one of a number of key issues. Instead he chose to whine about the amount of work regulators cause him then segue wildly into denialist talking points and a bit of trolling for social media hits (which sadly, and all too predictably, worked) … but c’est la vie and we move on.

Now, back to work. Let’s leave Mr Kirk alone as he’s already occupied far too much collective headspace these last few days, and could probably use the time to brush up on some real climate risk research (I’m sure he’d appreciate suggestions).

And if you’re stuck wondering where to start work maybe addressing greenwashing in your organisation would be a good place.

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