London When it comes to money, the maxim “Put your money where your mouth is!” has long applied to the financial sector. Hardly any asset manager today can ignore the moral premises of their clients.
The fierce and partly justified criticism of the so-called ESG criteria does not change that. “Greenwashing” allegations are more of a call to take a closer look at where you invest your money than a reason to completely switch off the “environmental, social and governance” filter when investing.
It is all the more remarkable that although asset managers create new ethically oriented investments for investors almost every day, they are far less picky when it comes to selecting their clients. In particular, the cooperation between asset managers and the sovereign wealth funds of authoritarian regimes is still considered a “blind spot” in the debate about “moral money” in the industry.
This could soon take revenge: Not only because, given the geopolitical tensions between Western democracies and authoritarian states, it is becoming increasingly risky to increase the fortunes of dictators who often have blood on their hands. There is also the threat of an image problem that will scare off other customers and potential employees.
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Experts estimate that more than ten percent of the world’s assets under management of around 120 trillion dollars are in accounts of sovereign wealth funds of authoritarian regimes. It is not known how much of this these funds have managed by external asset managers, but it is likely to be a considerable sum. According to the Chinese state fund CIC alone, more than 60 percent of its 1.35 trillion dollars are managed by professional asset managers outside of the fund.
Banks ignore the growing distance between the West and authoritarian states
This is also one reason why large western banks simply ignore the geoeconomic decoupling between western democracies and authoritarian states.
Last week, the US bank JP Morgan and the British Standard Chartered received permission from Beijing to expand their asset management in China. The US bankers are benefiting from an agreement negotiated by Donald Trump that allows them to buy out their local Chinese joint venture partners.
European asset managers such as the Swiss UBS also want to increase their involvement in China. Western fund managers are primarily targeting the huge private wealth of the Chinese. But there is also a fierce struggle over sovereign wealth funds – and not just in China, but also in Saudi Arabia and other Gulf states.
Until recently, even Russian sovereign wealth funds were being courted by western financial professionals. The harsh sanctions imposed by the West after Russian troops invaded Ukraine show how risky the business with the dictators’ money has become. Even if, according to a new study, less than nine percent of all Western companies involved in Russia have actually severed their ties with Putin’s empire.
In the future, financial managers will find it increasingly difficult to explain to their ethically conscious clients how, on the one hand, they uphold the United Nations principles for business and human rights in their glossy brochures and, at the same time, turn themselves into financial henchmen of dictators. “Put your money where your mouth is” – this should not only apply to investors, but also to their professional asset managers.
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