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What Good is Treasure if There’s Nowhere to Spend it?

Jacob Malthouse
Jan 6 · 6 min read

The report itself was unremarkable, the statement it made wasn’t. The asset management group eventually got 11 reports. The analysts did not disappoint. We got more research on environmental issues in one shot than had been pulled together by mainstream banks ever before. It was treasure.

The Goldman Sachs report was the crown jewel. Sarah had done her work admirably. Goldmans had — for the first time — ranked the major global public Oil and Gas companies according to their social and environmental performance. This was not the lunatic wing of Goldman Sachs. It was their European Oil and Gas Research Team.

This was not the lunatic wing of Goldman Sachs. It was their European Oil and Gas Research Team.

The report was easily double the length of all of the other brokerage house reports. It went into deep detail, covering not only climate policies, but the likelihood of health and safety incidents, leaks and spills, and management quality. It sent a shock wave.

We had to wrap it up with the other reports in a marketable package. I proposed having the group split into teams and peer review the reports. The group would provide constructive comment on them that would act as guidance for future work. We would also summarize each report to try to capture the essential elements.

My desk got worse. It was covered in piles of paper as I tried single-handedly to manage comments from 12 bankers, 11 financial analysts and the UN. Slowly, painstakingly, I secured sign-off from everyone and built a latticework between them.

Carlos wanted a title that captured the relevance of the work to financial markets. He picked the term “materiality”. We couldn’t use the term “extra-financial criteria” since that was the literal opposite of the point we were trying to make.

After some playing around, I settled on environmental, social, and governance criteria — ESG.

After some playing around, I settled on environmental, social, and governance criteria — ESG. I wanted environmental issues to be first because we were the UN environmental program after all. It was a nod to our patron. We also felt that environmental issues were more concrete and less subjective.

Of the three, environmental issues were the most likely to not only be material, but show up as such in research. I never thought it would become the acronym for a whole industry, let start so many debates about why it wasn’t “GSE”, “SEG” or something else!

Apart from the hideous title, We did not want the report to look like a UN document. UN documents are insanely dense. They make the Old Testament look like a tabloid. The cover is usually an African working in a field. Or a windmill or an endangered monkey. But poor people are the best choice.

Paul’s men in Paris, two designers called Rebus, went with a close up of flowing red silk. All we needed was a venue. Thus began our fraught relationship with the Global Compact.

The Global Compact was a novel idea. The idea was that the UN should be working with, or ideally educating, companies about things the UN cared about. Basically the Global Compact was the UN’s attempt to acknowledge that companies existed.

That sounds insane now. But it wasn’t back then. This was not even fifteen years after the Berlin wall fell. The Soviet Union didn’t even agree with the concept of a private company. It was considered an invention of an evil capitalist system. The idea that the UN, an association of the world’s governments, should even countenance the existence of companies was an anathema.

Secretary General Kofi Annan had to figure out what the UN was going to do now that its primary role wasn’t brokering restraint during the cold war. The now quaintly named “Millennium Development Goals” were his effort to pivot to something a little more forward looking than “not nuclear war”. I loved them for their ambition. I loved Kofi for his vision and approach.

Kofi would actually email blast the entire UN. When the UN won the Nobel peace prize, he emailed all staff and said — you did this — you won the Nobel peace prize. Now I’m pretty sure I did not actually win the Nobel. But I appreciated the gesture. When Sergio de Mello and many UN staffers were killed by an IED in Iraq, Kofi wrote a heartfelt email to all staff. De Mello was tipped to be the next Secretary General. He was widely liked by staff and seen as a real advocate for continuing Annan’s agenda. His loss was keenly felt, and Annan understood that.

The Global Compact was designed as a set of ten principles. A framework. They were a business translation of the UN’s Millennium Development Goals. The framework was a flawed first effort. While Annan was able to bring companies eager for the shine of the UN brand to the table, the Compact fell short on any sort of accountability. It was an entirely voluntary initiative. There were no reporting requirements and no fees. Many of us thought that Annan had sold the brand at a discount.

There were no reporting requirements and no fees. Many of us thought that Annan had sold the brand at a discount.

Annan saw that bringing companies — and nonprofits — to the table was a way to shift the UN away from the power struggles between governments to a larger more unified vision of what the world could become. He needed to inject new voices into the debate.

This was to become absolutely critical to our work. Annan had created a mandate to engage the private sector. Before this UNEP Finance Initiative was seen as an odd duck. It was out of place in the world of UN intergovernmental deliberations. Now it had implicit backing right from the top. The Secretary-General’s (the SG’s) office at UN headquarters. This also created challenges. UN Environment Programme was a tiny shop within the vast web of International organizations.

At the UN, the status of your organization depends on how you are structured. Agencies and Organizations are guaranteed core funding from governments. This gives them more room to maneuver and higher status. Programmes depend on voluntary contributions from governments. Every year they must present a work program and go begging for funding. The UN Environment Programme did not have the status of an Agency or Organization. It wasn’t based in either of the UN’s dual headquarters — Geneva or New York — it was based in Nairobi. UNEP FI might have had a mandate from Kofi. It was still based in the UN equivalent of Tatooine.

The Compact’s main function at this point was to corral corporate leaders into large events and force them to listen to propaganda about the UN’s Millennium Development Goals. These events were called “Global Compact Leader’s Summits”. Whatever your take on the UN’s engagement with companies was, this was the highest profile place to get your work in the face of both the UN and the business world. So getting your work there was competitive. A lot of the bureaucracy was fighting to get face time with companies. They smelled money and power.

Paul instinctively grasped that we had to launch the report at the leader’s summit. The only problem was that the Global Compact had also instinctively grasped that the Financial Sector was going to be important. They had no intention of ceding such a potentially powerful ally to a vestigial initiative buried within a tiny arm of a tiny programme. It would have been laughable.

The only problem was that the Global Compact had no contacts with the banks. We had them all. They also had no research. Nothing to hang their hat on. While they had all the political capital, we had the banks and the work. The stage was set for an internal wrestling match.

Artificial Heart

The Principles for Responsible Investment Story

Jacob Malthouse

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I love to explore connections between technology, society and planet.

Artificial Heart

The Principles for Responsible Investment Story

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