The honesty trade

Gneiss Head of Capital Markets Rich McGlashan shares his views on the impact of increasing ESG regulation on Capital Markets.


The honesty trade - addressing real-world issues of ESG and climate change within capital allocation.


Even the catch-all acronym of ESG (V2.0 of SRI et al), headlines the simplistic and stylistic approach that capital markets deploy in the first instance to simplify every marketplace and world dynamic – at the macro and marketing level. Even the focus on each component part is more ‘Eurovision’ than ‘multi-generational’ in approach. See the backseat ‘Governance’ has taken in recent times, as the government has clambered to get on the SPAC bandwagon, just in time for the music to become eerily quiet. If the acronym has validity, there needs to be equality of factors and consistency of approach.


From an environmental and climate change perspective, capital markets have seen a gold rush of consultancy and origination fees and deployed multiple quick-fix, platform and rating solutions which have exacerbated the incoherence of the landscape and driven a lack of genuine and protracted behavioural change – all secreted into the nattily entitled TCFD (Task force on climate related disclosures) framework. The genuine issue is the requirement for a deployable framework solution to a heterogenous problem at the corporate and nation state level.

Multiple complications remain, including the additional feedback loop and the second order effects. Additionally, the cure might well be worse than the disease in terms of lifespans – if not planet-span – given the protracted timelines involved.

lush green pine forest
‘Not everything that matters can be measured. Not everything that we can measure matters’ 

- Ridgway 1956


The CAPM (Capital Asset Pricing Model) has long been the ‘signal box’ for investment flows and the ‘risk free rate’ at its core requires adjustment to reflect climate and environmental risks inherent in corporate activity. Firms must be penalised and incentivised for their behaviour as it resonates in their impact on the world in which they operate – in a holistic sense. Capital has to date been allocated on a ‘carbon-footprint’ agnostic basis, which is no longer plausible intra-generation and beyond. Tough wholesale change will be painful but required. More difficult to implement, given the standard of living implications and the current regional offenders vs points in national economic development. There is a requirement for inter-nation/continent pay-away, hard in normal times but more so in the current geo-political scenario. Expertise and honesty are required in equal measure.


Navigating these ever changing and uncertain waters is becoming increasingly perilous – as each week passes, more regulation and doctrine emerges and it’s not always clear which is the most relevant to any particular company’s approach.  In the UK, the need for listed entities to adopt TCFD in their reporting is only the beginning – those with a US presence may be required to accommodate the SEC regulations, and those in Canada etc.  You can see how this might evolve.


Whilst the ISSB endeavours to unify standards (see this piece from our colleagues at Acasta), the current onerous landscape provides for an arduous journey. 


You might consider my thoughts a little myopic from a Capital Markets standpoint – they’re not meant to be, rather an eye-opener to what might lie ahead.  And my colleagues at Acasta are on hand to help you with the tiller as you sail these stormy waters...

Hear from our experts

The more rigorous incorporation of climatic factors into the pricing of capital in a listed corporate context is becoming key.  It is vital that we don't make this an overly onerous assignment through regulation. 

Rich McGlashan

Head of Capital Markets, Gneiss

Connect with us
Our high level of service is firmly founded on the knowledge, experience, insight and judgement of our team. Find out more about what we can do for you and start your partnership with us today.