Sir David Attenborough’s marvellously compelling nature programmes (BBC TV) outline a pending catastrophe.  He says that of the world’s remaining 8 million species, 1 million now face extinction.  Thousands of species have already disappeared from the Earth; without further action the biosphere is at risk of collapse.  Everyone now knows this; too few take it seriously.

This is a salutary enough warning in itself.  But Attenborough has also revealed a largely hidden chain of connections in the biosphere.  Trees seem to rely for their survival on subtle connections with animal and insect life.  Throughout the natural world, all creatures rely for survival on their interconnectedness.  Any break in the natural chain of dependency threatens further loss of species. 

The infinity of such connections between species poses difficulties for those seeking to apply ethical standards for human interaction with the natural world.  

It seems the behavioural influences between species in the chain arise quite early in the process of evolution.  As Adam Nicolson points out in his fascinating book “The Sea is Not Made of Water”, primitive marine species have their own life chain that links their outcomes with that of neighbouring species.  These inter-connections raise a vital question.  When and where in the biological chain should ethical judgements be applied?  What if valuable forestry habitats disappear because of human interaction with their environment?  What of the company that makes the saw, what of the wood-cutter, what of the cargo boat, what of the European timber agent, what of the Brazilian Government?  Or what if millions of sentient fish die from suffocation every day as they gasp on boat decks?  Fish are a vital food source for millions of people. Is it simply a matter of relativity as between their suffering and our deprivation?  The trouble is that when the impact of our interactions with the biosphere are viewed at the deepest level, virtually no human act is entirely free of taint. 

Hitherto, ethical investment judgements have been defined by reference to a catalogue of prescribed norms.  Collectively these are commonly bunched into the acronym known as ESG (Environmental, Social, and Governance issues).  But the criteria are insufficient and in aggregate, incoherent.  The number of impact points between species of the natural world is virtually limitless.  What should be done if the proverbial butterfly flaps its wings in China and the hurricane in America ensues?  Are we to eliminate butterflies?  Wherever one draws the ethical lines, they quickly get smudged.  Each defining point merges into its neighbour. 

Ethical investment needs to accommodate the fuzzy nature of moral criteria.  Investors may have to reshape their ethical focus.  

Present assessments are set against a background of unbridled consumerism among the richer nations.  Generally rising living standards in the West sit uneasily alongside the plight of the impoverished and needful elsewhere.  It is the latter group that suffers most from our assault on the world’s habitat and resources.  The fate of the poor is linked inextricably with the planet’s natural environment.  Damage inflicted by humanity’s appetitive instincts is all too clear.  Investors have to decide where in the chain of connection to develop a new critique for ethical behaviour.  

Widening social concerns have already strengthened the role ethical assessment plays in investment decision-making.  Indeed, monitoring ESG investment processes has become an industry in itself.  It has become the arbiter of ethical worth.  Practical application however exposes its limitations.  Not a day passes but some new corporate aberration hits the news.  A topical one relates to the issue of Western businesses exploiting suppliers in the third world.  Similar gaps between profession and practice beset government policy.  Commercial links with arms purchasers and energy suppliers in the Middle East ride roughshod over professed principle.  There is no single definitive moral code that deals adequately with the inconsistencies.  

One problem with the current ESG regime may be that investment managers tend to focus their considerations on quantifiable issues that are close to hand.  Focus should be trained far more upon the qualitative impacts of business.  As matters stand, the logical framework of the current ESG design looks pretty flimsy.  

The collision between moral judgements and financial and economic objectives is a frequent source of inconsistency.  One need not explore far afield to see the difficulty.  Cutting energy consumption is a laudable objective.  Then out of the blue the price of energy rockets.  Within weeks, development of a vast new oil field West of Shetland is back on the development agenda.  Popular disaffection and pliant political leadership void professed principle of any weight.  Resort to expedience is no substitute.  

Tackling the problem requires a shift of investment focus from its current concern for demonstrable effect, to a holistic approach.  That means looking beyond lip-service to a code itemising the ingredients of ethical behaviour.  In its place those involved in investment decision making should look to a company’s own explanation of its behaviour at every point of impact.  Company management should provide its own evidence of a habitual concern for the chain of social, cultural, and environmental impacts of its activity.  Ultimately it is the characteristic habit of a business that will sustain its prosperity.  Investors should lay much more emphasis than now on a company’s justification for the remote, as well as the proximate impacts of its behaviour. 

Immediate financial results remain important to any business.  But respect for social impacts and their inter-connections should become a primary concern of good management. Some Scandinavian countries have long since adopted social concern as a primary policy consideration.  The UK’s own co-operative movement launched over 100 years ago exhibited a similar social consciousness.  A combination of investor pressure and government diktat is pushing UK companies towards the Scandinavian model.  

Within perhaps a decade, the biggest companies will come to be viewed as public service utilities.  Each would be seen as providing an important service whilst taking full account of the environmental impacts of its behaviour on the natural world.  That entails a shift in corporate attitude from a goal maximizing quantity to a concern for the qualitative factors that support its place in the environmental chain.  

Public utilities – if that is what our corporate Titans are to become – have not always been popular with investors.  Western governments may shortly begin to milk big companies as cash cows.  Under financial pressure the UK Government has recently introduced a ‘windfall’ tax on the energy sector.  Given the Western world’s financial strait jacket, business leaders can expect further taps on the shoulder.  

This shift of accountability need not cramp a company’s efforts to achieve realistic monetary goals.  Rather it implies an understanding that only convincing evidence of a deep social concern will satisfy all its stakeholders.  Without it the long-term survival of any business must be in doubt.  Business managers may need help to flesh out the scope of their responsibilities.  Reward mechanisms for enhancing environmental concerns have already been introduced in parts of the UK agricultural sector.  There is no reason why they shouldn’t be extended to other sectors.  

For ethical investors it is a matter of encouraging companies to realign their interests with their whole chain of connection across the environment.  It would then be possible to shred the cooking recipe route to ethical justification in favour of one assessing management behaviour in the round.  Business managers are best placed to trace and justify their own conduct throughout the chain of connected factors.  When competing principles cloud ethical assessment, it is for managers to explain any balance they strike.  The onus of justification lies on them.   

These may be radical suggestions. But they need not restrict entrepreneurial activity so much as reshape its area of focus.  The impact of our behaviour on the environment has reached a critical point.  Concern for the chain of our connections with the natural world should transcend all other considerations.  Application of ESG criteria has undoubtedly helped raise the level of investors’ engagement with corporate management.  This has been valuable.  A different approach to assessing business behaviour is now required.  Ethical investors need to find a more rational foundation upon which to rest their conclusions.  They should look to businesses themselves to provide it.  

Business should re-set its priorities accordingly and not only to protect the natural world.  Humanity’s presence within it is ultimately at stake.  “Ethical” investors can help secure it.

31^st May 2022