Is the backlash over SVB collapse a threat to 'woke' investments?
An employee holds the door open at the Silicon Valley Bank branch office in downtown San Francisco, California, U.S., March 13, 2023. REUTERS/Kori Suzuki
What’s the context?
Critics have blamed Silicon Valley Bank's collapse on its promotion of ESG. Here's how the fallout could affect ESG in future
- Conservatives point to perils of ESG in SVB collapse
- SVB had major hand in tech, climate sectors
- Anti-ESG push percolating in U.S. Congress, states
RICHMOND, Virginia - As some right-wing critics blame the collapse of Silicon Valley Bank (SVB) on "woke" investments, advocates of equitable business say one bank's demise should not derail years of progress to foster greener and more ethical practices.
"ESG is too important to fail - not too big to fail," said Scott Nadler, a long-time consultant whose work includes advising clients on Environmental, Social and Governance (ESG)-related policies.
The ESG movement is a push among investors to get corporate boards and fund managers to weigh factors such as climate change, labor rights and diversity commitments from companies when making financial decisions.
Tallying up a firm's ESG exposure shows how much a company invests in ethical and sustainable sectors - causes that many consumers hold dear.
The bank financed more than 1,500 clients in the climate and sustainability space and funded key sectors like women's health and affordable housing - all in line with established ESG goals.
In its latest ESG report, SVB had promoted an $11.2 billion investment in areas such as affordable housing, a 52% reduction in its greenhouse gas emissions, and a commitment to increase diversity in senior roles, among other initiatives.
ESG-minded groups that had won funding or partnered with SVB through sponsorships are now left to pick up the pieces.
"Losing a really significant player at the early stage of the ecosystem was really, really concerning," said Ashleigh Ainsley, co-founder of Colorintech, a British-based nonprofit group that had partnered with SVB on banking.
Colorintech trains entrepreneurs and students with a goal of increasing minority representation in the tech sector – similar to SVB-backed programs the bank had touted in its ESG policy.
SVB had served more than 9,500 clients and boasted total assets of more than $211 billion at the end of 2021. It had won plaudits for its ESG policies, scoring a "A" rating from financial firm MSCI Inc - third best of seven possible scores.
The bank, which had been the United States' 16th largest, also claimed a hand in financing 62% of the country's community solar projects, which frequently benefit low to moderate earners.
Ainsley said it was important to have banks that are willing to work with under-represented, often under-financed groups. But he said the company's attempts at boosting its own diversity was not to blame for SVB's demise, as critics have claimed.
"The fact that some of its executives have Black or brown skin is not the reason why the bank failed," he told Context.
The bank collapsed on March 10 after it had announced a $1.8 billion loss on securities sales days earlier, spooking investors and helping spark a bank run.
The U.S. government stepped in on March 12 to say depositors would have full access to their money in a bid to steady fast-falling markets.
The episode swiftly became fresh fodder for a long-running conservative push against so-called "woke" policies - a catch-all term for racial and cultural awareness - that has gained steam in recent years.
Conservatives rushed to tie the company's ESG policies, such as its promotion of diversity, equity and inclusion (DEI) benchmarks, as prime culprits in the bank's collapse, saying they distracted the company from its core financial goals.
"It is abundantly clear that SVB was terribly mismanaged. Their executives appeared to be more focused on diversity and ESG than managing their own risks," U.S. Senator Bill Hagerty of Tennessee, a member of the banking committee, said on Twitter.
Despite presidential objections, the U.S. Congress this month passed legislation to prevent pension fund managers from factoring climate change into their investment decisions.
Some U.S. states have taken similar steps - to the consternation of ESG advocates who argue it makes sense, socially and financially, to adhere to all three pillars.
"The notion to say it's bad economics and bad finance for your investment funds to look at the issues that are totally going to drive value over the lifetime of somebody's retirement is insane," Nadler said.
Even analysts who do not blame ESG directly say the bank's downfall could have a chilling effect on small businesses caught in its maelstrom, as well as on future investment in the sector.
"Going forward, I suspect this will make people in the world of corporate finance more skeptical of firms with high-profile ESG commitments," said Richard Morrison, a senior fellow at the Competitive Enterprise Institute, a D.C.-based think-tank.
How ESG was SVB?
Despite the bank's clear commitment to the climate and socially conscious policies, SVB fell short on key aspects of the "G" in ESG, critics say.
The bank went without a chief risk officer for nearly eight months in 2022 and failed to account for recent interest rate hikes that ultimately led to its cash crunch.
A key proponent of ESG principles said the bank fell short of its own promises on good governance - to disastrous ends.
"If you don't have a good ESG strategy, businesses unravel - that's why it's really important that we get it right," said a spokesperson for The ESG Foundation, a group that works to promote the policies.
So the downfall could prod others into action, they said.
"What it will do is harden the resolve of those boards to demonstrate that they are actually doing the right thing."
Even some conservatives have dismissed the argument that "woke" policies caused SVB's collapse.
"They didn't behave like a woke bank. They behaved like a bank bank," said Peter Morici, a conservative U.S. economist.
"If the ESG movement has problems going forward, it's not going to be because of this bank."
A request for comment to SVB was redirected to the Federal Deposit Insurance Corporation (FDIC), which declined to comment.
The FDIC, a government agency that insures deposits at financial institutions, had announced last week that SVB would be shut down and placed under its receivership.
(Reporting by David Sherfinski; Editing by Lyndsay Griffiths.)
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