James Gifford interview: We started ESG. Trump killed it. But tech and nuclear will save the planet

Back when I was younger, I shared a basement flat below a rambling, grand old house in the inner west Sydney suburb of Stanmore with James Gifford.

I remember that James, or ‘Giffo’, as he is known, seemed more focused on raising chickens in our backyard than his Phd at the University of Sydney. He finally, however, knuckled down and finished it.

Little did I know that the Phd Giffo was working on was the beginning of ESG.

Later, when he was at the United Nations in 2004, Giffo and a handful of others coined the term and took it global through the Principles of Responsible Investments (UNPRI).

ESG went on to revolutionise and dominate investment and corporate governance over the next few decades.

Yet ESG is now facing a backlash that threatens its future.

I thought it was a good time to interview Giffo and get his thoughts on the rise, fall and future of ESG. He shares his thoughts on Trump, “green hushing”, private markets and nuclear.

James was most recently Head of Sustainable & Impact Advisory at global wealth managers, Credit Suisse and UBS.

He also runs the ‘Impact Investing for the Next Generation’ program at Harvard, which trains the next generation of high-net-wealth families to have a positive impact when investing.

One thing I’ve learnt, having known Giffo for so long, is that where Giffo goes, the world follows … so he is worth listening to.

Has Trump killed ESG?

Yeah, ESG as an acronym is dead.

What were the origins of ESG?

The Wilderness Society in Australia was among the first to use the tool of shareholder activism with a major campaign against Gunns Ltd [the Tasmanian forestry company].

Some 80% of Australians at the time didn't agree with Gunns’ policies.

Who were the owners of Gunns? Super funds.

We started running campaigns to say to the super funds: 80% of your members oppose Gunns’ policies.

You should therefore file a shareholder resolution at the Gunns AGM demanding they transition to more sustainable forestry practices, as companies had on the mainland, and in North America and Europe.

But ESG really began when you turned up at the UN

I was part of the team at the UN that coined the term ESG back in 2004. I really brought that Gunns-style active ownership or shareholder engagement piece to the UN.

ESG became enshrined in the UN Principles for Responsible Investments (UNPRI), a set of six principles for responsible investing.

ESG began simply as a lens through which to assess additional risks and opportunities that are not normally considered by investors, with the goal of making more money.

By taking these ESG – environmental, social and governance – issues into account, really smart fund managers may be able to eke out some alpha, which is consistent with their fiduciary duty.

Principle 2 of the UNPRI commits signatories to also being active owners.

That is, if you see a company where actions on ESG factors undermine its potential financial future or reputation, then you should put pressure on that company directly to address that issue.

So ESG came from the investment community (via the UN), and focused on the investor space, the pension funds and fund managers.

It clearly broadened out

The pension funds and fund managers started pushing ESG factors onto companies.

And then companies, because they respond to investor pressure to a degree, started using the term ESG as a synonym for corporate sustainability.

Now, ESG was never designed as a term for corporates to use.

ESG was an investor term; it was a bucket of issues, a subset of sustainability issues, that could be financially material to investors.

But over the years, it just got substituted for corporate sustainability.

And then the activists got involved?

Yes, in the late 2010s, the activist parts of the investor community basically took over on many issues.

The financial materiality was no longer really driving it.  

And I think, to be honest, from the beginning, the financial materiality was always a Trojan horse to get these issues discussed at all.

Goldman Sachs is not going to discuss climate change if they don't have at least a plausible business case.

When did ESG become controversial?

It’s hard to pinpoint, but I think it was in 2021 when BlackRock and all the big fund managers supported the removal of three board members of ExxonMobil and replaced them with directors who had green credentials.

Most shareholder activism, the majority of which involves the filing of shareholder resolutions asking the companies to do something, is advisory only. It’s not mandatory.

There was a nice kind of equilibrium there.

But what happened with ExxonMobil is the more activist wing got control of BlackRock's voting policy and convinced Larry Fink [BlackRock CEO] and others that it was worth voting in favour of these climate change resolutions, which include director elections.

But director elections are not just advisory. They are an exercise in hard power.

The Republicans saw that their buddies had just been kicked off the board of ExxonMobil and replaced by, for example, a more progressive Finnish woman with experience in both fossil fuels and renewable energy.

And that’s what got Republicans interested?

Yes, in my view, that is what most likely mobilized Vivek Ramaswamy, for example. He wrote a book called ‘Woke, Inc’ about the woke takeover of Wall Street.

The governor of Texas banned the Texas pension scheme from investing with fund managers that supported these kinds of resolutions, including BlackRock.

Then you had Ron DeSantis [Florida Governor] really lean into the anti-ESG agenda.

Once the Republicans saw ESG as a purely ideological non-financial movement, which in part it was, they then went just nuts on it.

And basically, this is the rise and fall of ESG. 

It was framed as something that was financially relevant. This allowed it to become this behemoth.

Then it went too far on some issues. The backlash came, and the pendulum swung back.

Did Trump’s re-election then put a final nail in the coffin?

Trump’s election and all the anti-DEI and anti-climate activity really killed off the term. Companies recognised that the pendulum had swung back a long way.

Larry Fink from BlackRock stopped talking about climate. DEI was stripped from companies’ websites. And many funds de-emphasized their ESG credentials.

It felt like Trump’s election was a complete repudiation of the progressive agenda, and the “vibe shift” was stark within ESG, particularly in the US.

The substance isn’t gone, and it still has considerable support in Europe and in Democratic-led states. But it certainly isn’t heading for mainstream dominance. 

Where did ESG go too far?

I think DEI really went too far. People in companies were seeing unqualified candidates being promoted simply because of racial or gender quotas, and internship programs reserved for anyone but white men, and this was starting to annoy even progressive people.

Activist shareholders went beyond simply pushing for a broadening of the candidate pool to insisting on racial and gender audits of senior management, and demanding representation from different backgrounds, regardless of the pipeline of suitable talent.

And the McKinsey report claiming significant financial outperformance due to board diversity was utterly debunked. This all created the impression that this was not really about financial performance, but just using the finance sector to further progressive goals.

What about climate?

You could argue that the climate piece also went overboard – if the goal was to build support and not stimulate a backlash.

On the other hand, the climate change shareholder proposals were always couched in business terms. That companies needed to mitigate the risk of climate and needed to do something about it earlier rather than later, etc.

But if you're a Republican and you don't actually believe climate change exists, then, of course, it's not a risk, it's just an activist strategy that should be resisted.

How do you feel about what’s happened to ESG?

The intentions were good.

I think where it went wrong is that these issues didn't have enough political salience to win elections and actually get put into hard law.

You wouldn't need an ESG movement if governments just forced all companies to have emissions controls.

So the ESG movement was trying to get companies to do things that they weren't required to do by law and where there was a plausible, but not at all rock-solid, business case. And that’s a hard thing to do.

But it also created a huge bureaucracy.

Yes, the whole ESG movement became too bureaucratic and too reporting oriented.

The easiest thing to get people to do is bureaucratic tick-boxing activities.

These corporates faced shareholder resolutions demanding they develop a climate mitigation strategy. But they ended up building a bureaucracy that just threw sand into the gears of getting things done without really making a big difference.

But activists try to achieve whatever they can. If you can't get these big regulatory things done, you'll go for whatever you can achieve, and in many cases, that is incremental reporting and disclosure.

Did it make any difference?

There's no doubt that European companies that have done all this CSR (corporate social responsibility) reporting have picked low-hanging fruit in the last 10 or 20 years.

But would they have done this anyway, just based on consumer and internal employee pressure? Who knows?

So in that sense, maybe ESG did actually perform a role in pushing things along, but it's probably a limited role.

What is the future of ESG?

While these practices are now embedded in many, many companies, the term ESG is going to go away. It's become so toxic that most investors and companies are now replacing it with ‘sustainability’, ‘transition’, ‘material risk factors’ or some other term.

A decent subset of fund managers, however, have been convinced that at least some of those issues are worth looking at, and these would include climate risk, and issues that can affect corporate reputations.

Reputation is, after all, a huge driver of companies' valuations, and reputations are more vulnerable to ESG crises than ever before.

Of the probably 20,000 analysts who just focus on ESG-type issues, I'd say three-quarters of them will continue doing what they’ve been doing.

But things will be much, much lower profile. “Green washing” is where you pretend you're greener than you really are.

The new term “green hushing” is where you shut up about how green you are because you don't want to draw attention to your environmental credentials.

A lot of companies now are doing a lot of good stuff on the environment and social stuff, but they're being quiet about it. It's no longer something that they want to market because they might be accused of being, you know, woke capitalists or whatever.

How do we solve big global problems like climate change when there is a political stalemate?

There is a way forward that can bridge this partisan divide, and it's around innovation and technology.

We'll only solve climate change by inventing our way out of it.

If we can reduce the price of batteries by 99% from where they are today, for example, Australia could have cheap energy. Renewables can work … with batteries that are 99% cheaper.

It's technology that will drive innovation and make things cheaper and better, and then everyone's a winner in a free market.

The big progress that society makes is almost always through technological development, whether it's vaccines, catalytic converters in cars, or whether it’s scrubbers on factory smokestacks [which remove pollutants from emissions].

Now, I'm not saying there isn't a role for regulation.

But climate is such an intractable global externality that it really doesn't make a lot of business sense for any one company or even country to do anything unilaterally.

So the only regulatory strategy that could ever work is a global price on carbon. And that's never going to happen with China and India and Nigeria and so on, being responsible for most of the growth of emissions going forward.

What does that mean for policy?

From a government perspective, we should invest far more in early stage R&D instead of rolling out subsidised, expensive renewable energy infrastructure.

We should spend more on fast-tracking the technologies that will be simpler, cheaper and better, and stand on their own two feet economically without subsidies.

More than 90% of all government spending on climate is rolling out, or subsidizing, renewable energy infrastructure.

A huge chunk of that could be spent on a moonshot on small modular nuclear reactors, geothermal, batteries, or whatever it is, and that could be an incredible bipartisan outcome.

Do you support nuclear?

Absolutely.

There is currently no other low-carbon energy source that is as reliable, proven and scalable.

It is a terrible shame this has become a partisan issue in Australia. The Democrats in the US are strong supporters of nuclear and passed significant legislation to make it easier to build nuclear going forward.

The Finnish (hardly crazy right wingers) have just switched on a huge new reactor and now get 39% of their electricity from nuclear – providing a reliable baseload for basically the next century.

If your goal is to have a thriving, globally competitive, industrial economy, I simply don’t believe it is possible to have reliable and affordable electricity with wind and solar alone. You need nuclear. 

You see a big role for private equity and venture capital in driving technological innovation

Twenty years ago, I thought the people with the big money were the ones who drove societal change. I don't think that now.

The people with the big money are followers because they can mostly only invest in things that are already large and commercial post-IPO.

The people who actually change society are the scientists, technologists, and seed-stage entrepreneurs who can bring those ideas to scale.

Those are the people we should be elevating and funding, to get them to a series A [capital raising], then series B, and eventually to IPO … where the followers will just take their slice of the economic pie.

My big mental evolution, I guess, is the big guys actually don't matter.

What’s next for your career?

I’m cooking up a new advisory business focused on some of the ideas we’ve discussed around making early stage tech, as well as frontier market investments, more accessible for investors.

And continuing my teaching of, and working with, UHNW families and family offices.

So if any readers of this newsletter like the sound of this, please reach out on LinkedIn!

Thanks James.