With its shares sitting 55 per cent below their 2021 high, Scottish Mortgage (SMT) is unlikely to be short of investors who are frustrated with the investment trust’s performance or its manager, Baillie Gifford.
But the fund house has a new source of ire to face, in the shape of Greta Thunberg. Last week, the world’s best-known climate activist said she was pulling out of this month’s Baillie Gifford-sponsored Edinburgh International Book Festival. In a statement, Thunberg called the group a heavy investor in the fossil fuel industry and accused it of using the event to greenwash its reputation and “keep the social licence to continue operating”.
The festival responded that while it respected Thunberg’s decision, it would stand by its long-term sponsor. Its director, Nick Barley, described Baillie Gifford’s patronage as essential to fostering “debate and discussion around key issues affecting humanity today, including the climate emergency”, and that its track record of early-stage backing for “progressive climate positive companies” made it “part of the solution”.
Baillie Gifford disputed Thunberg’s characterisation, noting that 2 per cent of its funds are “in companies with some business related to fossil fuels”, compared with a “market average of 11 per cent”. The group added that some of its company holdings in the sector had “already moved most of their business away from fossil fuels”, many “are helping to drive the transition to clean energy”, and 5 per cent of funds are invested in companies “whose sole purpose is to develop clean energy solutions”.
It's not hard to see the cross-purposes in this discussion. Thunberg, whose prerogative is anti-compromise, has previously called for the immediate suspension of “all investments in fossil fuel exploration and extraction”, along with the complete divestment of fossil fuels and an end to fossil fuel subsidies.
By this yardstick, it doesn’t matter if 0.1 per cent of Baillie Gifford’s client funds are parked in fossil fuel producers. With around $188bn (£148bn) in its funds at the end of 2022, that would still equate to $188mn, which isn’t an “insignificant” figure, however you spin it. And divestment, as a principle, isn’t about nuance.
To some critics, this makes it flawed. By arguing for large, public, and accountable money managers to divest, advocates arguably sacrifice the potential for shareholder engagement while overlooking the scale of less climate-minded pools of capital. There’s also an inconsistency in making villains out of fossil producers and their backers, while so much of the global economy is wedded to carbon-intensive activity. A recent report by the carbon disclosure group CDP, for example, suggested just four FTSE 100 companies had a credible climate transition in place.
But climate activists’ targeting of fossil fuel investing and financing is also tactical, and a way to flag the need to decarbonise everywhere and anywhere. Ultimately, it is also about shrinking the cash available to potential future sources of carbon emissions, while attaching a moral dimension to capital flows.
Still, given its avowed focus on climate change, do Baillie Gifford’s green credentials hold up? It raised the topic 236 times with investee companies in 2022 and has candidly acknowledged the “messiness of trying to live up to” its own role and the “trade-offs between competing interests, timeframes and even worldviews”. Nor has it ruled out the threat to divest on “financially-material climate grounds”.
SMT’s top holdings – including semiconductor companies ASML (NL:ASML) and Nvidia (US:NVDA) and electric car makers Tesla (US:TSLA) and Nio (US:NIO) – read like a roll call of tomorrow’s businesses. But you don’t manage a $188bn fund house without links to today’s energy economy. Once total emissions are factored in, the weighted average carbon intensity of Baillie Gifford’s funds stands at 632 tonnes of carbon dioxide per $1mn of portfolio company revenue. A third lower than the MSCI All-Companies World Index average, it’s also in line with the company's underweight position in “climate-material sectors” relative to the benchmark.
We don't have to look far for other potential sponsorship debates. The 2023 UCI Cycling World Championship, also being held in Scotland this month, brought several more clear-cut examples of fossil fuel groups – Shell (SHEL) among them – attaching their logos to the warm green glow of sustainable transport.
By contrast, greenwashing feels like a harsh charge to level at Baillie Gifford. But despite its renown for focusing on future industries, it isn’t a saint. Look hard enough, and you’ll see that none of us are.
