Wall Street Quietly Turns Tail on Its Sustainability Commitments

(Bloomberg) -- News emerged last week that Morgan Stanley had quietly shelved a central pillar of its sustainability strategy: a commitment to finance the cleanup and prevention of plastic pollution. 

Instead of opening up to investors and clients about the challenges in tackling such a pernicious problem, or revealing the lessons learned in five years of trying, the investment bank simply went silent. The news that the Wall Street giant no longer has an explicit financing goal to tackle plastic only came to light after Bloomberg Green asked the bank why—in contrast with previous versions—there was no mention of its Plastic Waste Resolution in its latest ESG report.

The episode is just the latest illustration of how much the corporate sustainability landscape—increasingly torched by a Republican crusade on behalf of Big Oil—has changed. 

In 2019, when Morgan Stanley announced its plastics goals, the firm used billboards on its Times Square headquarters to amplify the pledge. Once seen by the C-Suite as an asset in a world where making nods toward sustainability was good business, ESG has since become a liability in the eyes of executives fearful of right-wing blowback and the grim cocktail of lingering inflation and elevated interest rates.

Indeed, a survey released this week by Bain & Co. found sustainability has dropped down the list of top priorities for chief executives. Instead, CEOs are more concerned about inflation, artificial intelligence and geopolitics.

Many companies have simply reached the conclusion that it’s better to say nothing about environmental, social and governance-related topics. (When asked by Bloomberg, a spokesperson for Morgan Stanley said that while plastic waste “remains a sustainability focus” at the bank, it removed the specific financing goal due to challenges with “the quality of data needed to meet our disclosure standards.” The firm remains focused on financing the net-zero transition, according to its ESG report.) 

Relatedly, a recent Bloomberg Intelligence analysis said most US companies have “significantly scaled back” discussions of ESG and similar topics on quarterly earnings calls. And for those whose goals appear increasingly out of reach, the temptation to keep quiet is even greater.

“It is increasingly challenging to address the nuances of complex topics like the energy transition because of the growing segregation into ideological camps, which in turn reduces the space for honest practical dialogue,” said Adam Matthews, chief responsible investment officer at the Church of England Pensions Board, which manages over £3 billion ($3.9 billion) of assets. 

Beyond the political tribalism, companies need to have the room—and the time—to perfect strategies in achieving their goals, he said.

Matthews argues that the low-carbon transition, the central pillar of most corporate sustainability efforts, requires a “multi-decadal re-engineering of the global economy” that will require “constant recalibration as our understanding of issues and data evolves.”

Companies must be afforded space to grapple with the complexity of the challenge, explain where they’re coming up short and make adjustments—rather than be pilloried at the first sign that things aren’t going to plan, Matthews said. While plans will necessarily evolve, the bar shouldn’t be lowered, he said.

James Vaccaro, chief catalyst at the Climate Safe Lending Network, an industry group that works to accelerate the transition to a net-zero economy, said what’s needed from companies is “real honesty.”

That would involve “recognizing that the previous strategy was a bit too simplistic,” he said. Companies must acknowledge that reaching targets depends on supportive policies and providing updates on progress, which would help industries learn from a company’s mistakes and successes, he said.

Currently, “the risk of being called out has risen to the point that it’s hard to say anything,” he said.

For Sherry Madera, CEO of the environment-focused nonprofit CDP, it’s simple: Companies should provide details about their end goals and the steps they plan to take to get there. Most stakeholders are no longer just interested in the destination, they also want to understand the journey, she said.

Sustainable finance in brief

Apparently it’s not easy being green in Europe, either. For TotalEnergies SE Chief Executive Officer Patrick Pouyanne, the difference in the performance of his company’s stock and that of Exxon Mobil Corp., the largest US producer of oil and gas, is in no small part explained by an acronym: ESG. Exxon’s aggressive oil and gas strategy has been rewarded by investors, with its shares more than doubling in the past three years. For Europe’s second-biggest oil company, in contrast, pressure on the region’s asset managers to invest using ESG standards has capped gains and prompted Pouyanne to flirt with the idea of listing shares in the US.

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