Hello from Paris.
On my reporting trip across the Channel this week I met former Crédit Agricole banker Julien Lefournier, an outspoken critic of what he sees as the illusions of ESG investing — and in particular green bonds, which he sees as a “con”.
Lefournier’s controversial views mean he is seen by some as France’s answer to Stuart Kirk, the HSBC banker who quit in the wake of a furore surrounding his comments at a Moral Money Summit in London that investors need not worry about climate risk.
It’s not all doom and gloom though. EU banks have been pushing US ones to adopt greener standards at the Net-Zero Banking Alliance over the summer. One participant told me they see themselves as a “locomotive” on green finance standards, in the face of “violent reactions” by US banks fearing a political or legal backlash at home if they are seen to prioritise the climate over fiduciary duty.
But first, read Andrew Edgecliffe-Johnson’s interview with Charles Conn, chair of Patagonia — a US outdoor retailer whose founder has just given it away to environmental causes. (Kenza Bryan)
Patagonia spotlights its new shareholder: Earth
Yvon Chouinard, already one of the most provocative thinkers about capitalism’s social purpose, has raised the stakes.
The founder of Patagonia, the outdoor equipment business that grew from his love of rock climbing and the natural world, has long given a percentage of its sales to environmental causes and discouraged the consumerism that seems innate to retail. Now, though, he is giving the company away.
At 83, Chouinard has donated his family’s voting shares to the new Patagonia Purpose Trust, an entity charged with protecting the company’s values. The non-voting stock, and the roughly $100mn in annual dividends that go with it, will go to the Holdfast Collective, an environmental non-profit.
Chouinard’s family will guide how that money is spent, but in essence they have handed a $3bn business to charity (the tax bill will be $17.5mn, though Bloomberg noted that they have avoided the larger capital gains, estate or gift tax bill that other options might have incurred). “As of now, Earth is our only shareholder,” tweeted board member Ayana Elizabeth Johnson.
Patagonia was already a B Corp and California benefit corporation and Chouinard, now an ex-billionaire, said in an open letter that he had considered taking it public instead. “What a disaster that would have been. Even public companies with good intentions are under too much pressure to create short-term gain at the expense of long-term vitality and responsibility.”
Charles Conn, Patagonia’s chair, told Moral Money that what Patagonia had done was “extreme”, but it hoped to establish a model for others to follow. “We don’t think the model of shareholder-only capitalism is good for the world. We don’t even think it’s good for capitalism.”
With about $1bn in annual sales, Patagonia is successful because of what it stands for, Conn says. It could make more money short term by sourcing cotton from Xinjiang or buying harmful chemicals, “but if we did we would sell our soul and in the long run we would be like every other shitty company”.
He was scathing about recent rightwing attacks on ESG investing and stakeholder capitalism, saying that critics miss the fact that these shifts in capitalists’ priorities show that the market is working.
Milton Friedman’s notion that a company’s only social purpose was to make a profit presupposed no externalities and a world where giant companies were not running rings around regulators, Conn argued.
Asked to update Friedman’s famous dictum, he replied: “The only social responsibility of business is social responsibility. Put that in your pipe and smoke it, Milton!” (Andrew Edgecliffe-Johnson)
Questioning ESG is un tabou énorme, ex-banker says
Brimming with energy over two black coffees one afternoon this week, the French activist and former banker Julien Lefournier told me it had become “taboo” to question the sustainable investing boom under way in France.
“The finance world has always compared ecological activists to the Taliban and to the Khmer Rouge, but they are the ones who have a religious belief in ESG,” Lefournier said.
The 54-year-old consultant spent 25 years working at some of the world’s biggest banks, including in corporate debt issuance and as head of sales for France, Belgium and Luxembourg at Crédit Agricole, which he left in 2017.
His book, L’Illusion de la Finance Verte, co-authored in 2021 with Alain Grandjean, an economist and member of the government’s advisory council on the climate, was a manifesto proposing that sustainable finance serves only banks and asset managers’ reputation and revenues. It argued that “sustainable” products such as green bonds had an identical underlying price to their mainstream equivalents. This, the authors say, is because the risk of providing finance depends on an issuer’s underlying risk profile and does not vary according to the quality of the project.
A Paris-based sustainability consultant at a Big Four accounting firm describes Lefournier as one of the few openly critical French voices to have come from within the green finance industry. The consultant compares Lefournier both to Kirk and to Tariq Fancy, former head of sustainable investing at BlackRock, who warned that the financial world was rife with greenwashing.
Lefournier is well aware of the fierce reaction at HSBC to Kirk’s statement, but says he still thinks the Gallic world lacks “intellectual independence” compared with the Anglo-Saxon one. Veteran bankers worried about being fired for speaking out meet him in secret on their lunchbreaks to discuss their concerns about inconsistencies and greenwashing within the sector, he adds.
“French graduates have been told they can earn as much money [working in green finance] as their parents did [in finance] and also live the hairy, sandal-wearing hippy lifestyle,” Lefournier says, in reference to the financial sector’s tendency to hire graduates from the country’s best-known business schools. “Young recruits think ESG is a fantastic way of saving the world.”
Paris-based banks may trumpet their environmental credentials but they appear deeply divided on the speed at which to move away from fossil fuels and in particular from Total, the French energy major. An NGO report released during the heatwave and drought that swept the country in July estimated that three of France’s biggest banks advanced $300bn of financing and investment to the oil and gas sector in the five years following the Paris climate agreement in 2015.
Despite this, most people I met during my trip this week made the case that President Emmanuel Macron’s legal reforms in the wake of the landmark climate agreement have made France into a green finance pioneer. These include the 2017 “Duty of Vigilance”, which made companies responsible for preventing and mitigating environmental and social effects arising from their value chain.
Philippe Heim, chief executive of La Banque Postale and former deputy chief executive of Société Générale, also underlined the importance of the 2019 Pacte law when we met at the bank’s headquarters on the left bank of the Seine. The law gave all corporations a social and environmental responsibility, in a historic amendment to the 1804 Napoleonic Code governing French civil law.
La Banque Postale says it is the first in Europe to have introduced an exclusion policy for oil and gas financing and investment, effective from 2030. Unusually, its decarbonisation pathway has been approved by the Science Based Targets initiative, it adds.
“France has completely left behind [free-market economist] Friedman’s dogma that profits are king,” Heim told Moral Money optimistically. (Kenza Bryan)
FT data journalist John Burn-Murdoch has come out with an unsettling analysis comparing countries’ prosperity levels across the income distribution. Norway fares well in the equality stakes: not only are its top-earning 10 per cent among the best off on the planet, but its “poorest 5 per cent are the most prosperous bottom 5 per cent in the world”. In contrast, Burn-Murdoch warns, proud Brits and Americans “may want to look away now” . . .