On my last visit to Sri Lanka, nearly five years ago, I spent a couple of weeks researching two of the toughest problems dogging the south Asian nation: the bitter legacy of its brutal civil war, and a surge in opaque borrowing from China under former president Mahinda Rajapaksa.
Despite those challenges, Sri Lanka remained conspicuously prosperous by regional standards, and I certainly couldn’t have anticipated the chaotic events that have overtaken the country in recent days. President Gotabaya Rajapaksa (Mahinda’s younger brother) has landed in Singapore after fleeing his country amid huge popular unrest over rocketing inflation and dire shortages of food and fuel.
So I was struck to see the thesis that has been circulating online this week, linking Sri Lanka’s crisis with environmental, social and governance-focused investment. But as you can read below, the more Tamami and I looked into this theory, the weaker it seemed.
As we’ve written before, the ESG agenda is full of imperfections and in need of heavy scrutiny — not least over potential unintended effects on developing countries. But as the debate in this field becomes ever more heated, it’s worth doing your homework on the evidence behind those viral social media posts. (Simon Mundy)
Testing the theory that ESG caused Sri Lanka’s economic collapse
The recent extraordinary scenes from Sri Lanka, with angry crowds pouring into the president’s abandoned palace, are the starkest sign yet of the worsening debt and inflation storm assailing much of the developing world.
As foreign observers scramble to make sense of Sri Lanka’s crisis, one theory in particular has been gaining conspicuous traction in some corners of the internet: that the ESG investment agenda has played a big role in the disaster.
“The saddest victim of ESG is Sri Lanka,” rightwing television personality Tucker Carlson said on his Fox News show this week. “ESG [requires] countries to shut down their most productive sectors in the name of climate change.”
“Here’s how ESG destroyed one nation’s economy,” read a headline in the Daily Caller, a website founded by Carlson. An analysis on Substack by the contrarian environmental author Michael Shellenberger, which has been getting passed around in US business circles, stated: “The underlying reason for the fall of Sri Lanka is that its leaders fell under the spell of Western green elites peddling organic agriculture and ‘ESG’.”
It’s a compelling theory. But is it true?
Carlson, Shellenberger and the Daily Caller’s Micaela Burrow all focus on the government’s decision last year to ban imports of chemical fertilisers and other agrochemicals, which prompted a severe decline in agricultural output. But while they all attribute this to the influence of foreign ESG advocates, none presents any serious evidence for that claim. Instead, all three point to the country’s ESG rating of 98.1 out of 100 from World Economics, an obscure London-based outfit with a hyperactive Twitter presence.
When we shared the articles with knowledgeable contacts in Sri Lanka, they called the analysis misguided at best. “To attribute the economic crisis to ESG is not just a stretch but quite a flimsy argument by these folks,” said Anushka Wijesinha, co-founder of the Colombo think-tank Centre for a Smart Future.
It’s absolutely correct to call the agrochemicals move a disastrous policy, said Wijesinha. But while the president had long claimed to be a fan of organic farming practices, he added, the sudden import ban — along with similar measures on cars and many other products — was clearly aimed at addressing a worsening shortage of foreign currency. “It wasn’t the product of any ESG push,” Wijesinha said. “In fact, there is no evidence to suggest that the government had any ESG push at all.”
Murtaza Jafferjee, chief executive of JB Securities, a Sri Lankan stockbroking firm, agreed that the focus on ESG was a red herring. “What created the crisis was a large debt overhang, slowing economic growth and cutting taxes on the eve of the Covid pandemic,” he said. And while the agrochemical import ban “did add fuel to the fire”, he said, the president appeared to have been influenced not by foreign ESG advocates but by the “subpar advisers” surrounding him, some of whom were “charlatans and occults”.
That point was also stressed by Daniel Alphonsus, a former economic adviser to the Sri Lankan finance minister. The agrochemical import ban was less significant economically than other factors such as ill-judged tax cuts and an excessive delay in suspending debt repayments, he said.
It’s certainly true to say that the policy’s damaging impact on agriculture — which employs 27 per cent of the labour force — was terrible for the president’s credibility, Alphonsus added. But what drove the “politically suicidal and irrational” decision, he said, was “a curious mixture of longstanding suspicion of the western and the modern, [and a] desire to recreate a mythical, bountiful past . . . I don’t think this had very much to do with ESG.” (Simon Mundy and Tamami Shimizuishi, Nikkei)
Bill Gates’ $20bn pledge highlights philanthropists’ urgency — and their limits
Before Covid-19 hit, the Bill & Melinda Gates Foundation was spending about $5bn a year on its efforts to eradicate polio, end gender inequality and address other global challenges. By 2021, the world’s largest private philanthropic organisation had increased its annual spending to $6.7bn in response to the pandemic.
“At the time, we expected the extra spending to stop once the acute phase of the pandemic was over,” the world’s fourth-richest man recalled this week.
But he has now decided that he needs to start giving his $122bn fortune away more quickly, writing that Covid, the war in Ukraine and the accelerating climate crisis have meant that “the need in all the areas where we work is greater than ever”. So Gates is throwing another $20bn at the $50bn endowment, so it can increase its distributions to $9bn a year by 2026.
That fits with a broader mood among those philanthropists and foundations who are not constrained by rules limiting how much they can hand out each year. Led by the notable example of MacKenzie Scott, the wealthy and generous are increasingly anxious to accelerate their spending.
That is not always as easy as it sounds — by late 2021, even the Gates Foundation had managed to spend only $1.5bn of the additional $2bn that Gates and his ex-wife Melinda French Gates had decided to devote to the Covid response. Human capacity within such organisations and the groups they fund is going to be the main constraint, one other foundation head noted.
The high-profile announcement, by the former couple who founded the Giving Pledge with Warren Buffett, is designed to galvanise similar action from other philanthropists and the private sector, according to Mark Suzman, the Gates Foundation’s CEO.
But the most important actors, he notes, are governments, with resources that dwarf those of even the wealthiest philanthropists. The pandemic has left governments more indebted and less committed to international aid, Suzman warns. Most are not even spending what experts say is needed on preparing for the next pandemic.
Given the scale of problems from climate change to the food security crisis, Suzman says, “philanthropists can only ever, at best, be catalysts”. (Andrew Edgecliffe-Johnson)
Nuns score a win at the SEC
The nuns are flying high these days with a lift from the Securities and Exchange Commission.
On Wednesday, the SEC proposed rules to make it easier for shareholder petitions to be filed at companies, handing a win to nuns, environmentalists and other activists who push businesses on global warming and human rights concerns.
The SEC said it wants to limit companies’ ability to block shareholder proposals. Currently, companies can halt a petition if a firm argues it has largely accomplished what a shareholder proposal asked for, say, on climate change disclosures. The SEC wants to increase the burden of proof for companies to show they have made changes.
Religious organisations such as the Sisters of Mercy and Sisters of St Francis are some of the most prolific shareholder filers and have a record of winning support from the biggest asset managers. “We are strongly supportive of the proposed rule,” said Josh Zinner, head of the Interfaith Center on Corporate Responsibility, which represents religious groups.
If adopted, the SEC’s rule changes would probably lead to more shareholder proposals, and prompt companies to negotiate with shareholders before concerns go to a vote, said Craig Marcus, a partner at Ropes & Gray.
The SEC had already made it easier for proposals to get on companies’ ballots for 2022. The latest rules will further rile up companies that don’t like being bossed around on ESG issues. (Patrick Temple-West)
Who pays for climate change? This week the FT’s Behind the Money podcast explored the story of a Peruvian farmer fighting to protect his community from a potential flood by suing a German utility company for its contribution to global warming. Listen here to find out how the milestone case could break new ground in the push to hold high-polluting companies accountable for their role in the climate crisis.