ESG is such a obvious scam. It would be like this:
Wife: Have you been cheating on me?
Husband: Lets check my APS score.
Wife: What?
Husband: Adultery, Pushups and Soccer Watching score. Looks like I'm in the 1% of husbands as calculated by the experts. So I don't think you have anything to worry about.
Here’s a funny thing, if oil companies technically powered their refineries with renewable energy, would they be some of the most green companies out there?
It's a thinly veiled signal that a corporation will not act out against the status quo, and in return they will have protection from their corporate media and regulatory attack dogs.
The sad thing is they have scientifically captured and subverted mainstream activism, which for a while around 50-60 years ago emerged as what appeared to be their biggest threat. You can "resist" the state of things all you like, but you're not allowed to say anything about corporations that traffic arms to 3rd world countries because they tweet out BLM logos and rainbow flags now and again. And you have to resist by supporting mainstream political parties and politicians who have been around for decades and are definitely not complicit or responsible for what you are resisting.
Plenty of people believe that it is better to buy a gas powered Subaru instead of a Tesla because Elon doesn't support cluster bombing European farmland.
I'm only halfway joking. A lot of people do try to address their guilt over bad behavior by doing nice things. And a lot of people who receive those nice things don't want to think about why they are being treated well. The easiest person to scam is the one who wants to believe the scam. And any kind of credit program will attract people who want to believe.
I've seen a comedy show about that. Husband buys flowers "just because" and the wife starts crying uncontrollably, convinced he's cheating on her. Because there is no way he's just nice.
The kicker is he literally just wanted to be nice to her. While the other men in the family were trying to convince him that it's a bad idea.
Some times they are called "cricket tournaments".
Its not about addressing guilt, its about manufacturing social license to operate and the the bad things.
ESG is tricky to talk about thanks to the politization of it. I work on some projects that involve ESG data and I have some thoughts. First there's LOTS of factors. If you bunch them all up into one number, it becomes meaningless as the article describes. I would think wiser minds would use this data to make investment decisions based on some specific risk, like hedging against some environmental disaster which may affect some companies more than others. Also, one thing I notice is that umbrella companies make ESG data complicated. Sometimes there will be data from a subsidiary but not the parent, how that all bubbles up is of note. Companies may use this to manipulate their scores. And quality of the data is important, it is based on research not any sort of testing or analytic model, so one must trust the researchers in this case (or not).
"When a measure becomes a target, it ceases to be a good measure"
Any ESG system that uses a calculated number composed of many areas will quickly fall prey to Goodhart's Law. With an E, an S and a G to work on, the areas for change are numerous enough that Goodhart's Law holds even in a non-cynical world.
When an edict that "We need to increase our X score this quarter" is handed down, the real, living people who have to improve the ESG rating are likely limited in what they can do. A combination of pre-existing contracts and commitments, difficulty in changing large systems and problems with multi-department co-ordination means that most changes will be small and isolated, i.e. things where one department or small team can implement the entire change.
I'm working adjacent to the sustainability space, and I think Goodhart's law applies to a good degree, however a bad measure is often still more useful than no measure at all. It at least enables us to show flaws, develop better indicators and metrics.
When it comes to human rights in the supply chain and environmental impact, there was a complete lack of data in many cases. With the ESG, we see a major shift where companies are now scrambling to gather said data, analyse it and often also publish it.
Partially the politicization of it, but also because it is lumping together three issues that the society cannot even broadly agree one of the issues within 'ESG'. I don't think it is difficult to see why "ESG" is political by its nature.
Thanks this is a nice way of saying what the other poster said :)
I agree, ESG is just a bunch of numbers but if we can't agree on what the right output is then it's political in nature. I wonder if society has a bigger issue with disagreements about the E and S rather than the G, maybe not?
"Society" has plenty of disagreements on the G, but, fortunately for the companies in question, shareholders don't. G measures, essentially, how much the company prioritizes its shareholders.
I think there is a strong case for that, companies concern themselves with governance constantly and I would agree that there is less to be concerned about there. It seems like governance problems have been pretty well worked out over time and there is a good process for that even before the focus on ESG.
E and S are where many draw their political divides so I would tend to agree that is where many of the problems lie within ESG.
That's most of investing though. Investors won't all agree the operating cash flow, asset base, organic sales growth if there's been M&A, etc. let alone with a P/E, P/FCF, EV/EBITDA ratio makes a company cheap or expensive. Yet, this doesn't make it political in nature though.
As you note, the politicization of it makes it difficult to point out the flaws without people assuming you like hate the environment or something. The problem is, like any score, it's easily gamed. That's how we get companies like ExxonMobil having great ESG scores.
The Atlantic had a great article about it:
"When you invest in an ESG fund, you may think you’re buying into a highly curated selection of positive-outlier companies. In reality, it will often look similar to an ordinary market-wide index fund. The 10 biggest holdings in the S&P 500 ESG index include Big Tech companies such as Apple, Microsoft, and Alphabet; big banks such as JPMorgan Chase; and, incredibly, ExxonMobil."
ESG is a way for large firms to manipulate the stock prices of smaller firms and buy them out. That is all there is to it. Nobody should be fooled by this. None of these companies care about ESG or any of the propgandized ethics of ESG. Every one of these pro-ESG companies would lay off a large swath of their workforce if it meant higher profits. Pretty painful for the "S" social part of ESG.
Making an assumption that the factors into an ESG score are significant in how they affect a company; isn't investing into a company with a bad ESG sub-component(s) a good idea?
You've identified what is going wrong with the company so as a large fund you can buy a lot of shares and push for shareholder votes to fix those aspects of the company and reap profits when the company improves?
> isn't investing into a company with a bad ESG sub-component(s) a good idea?
Yes, that is the paradox of the ESG finance trend.
Using a quantitative approach, you can use the CAPM to show that at equal risk/return, increasing the cost of capital of some companies (by limiting their access to funding because of low ESG score) actually make these companies a comparatively more profitable investment (for those that disregard ESG).
If you like these kind of paradoxes based on investor ethics, have fun discovering the world of Islamic finance and how to get interests when you cannot get interests.
Was gonna post this. That said, this is not what Levine is writing about. Levine is writing about how you can restructure your portfolio to gain exposure to fossil fuels _without_ lowering your ESG metrics by simply investing in companies with fossil fuel holdings (since then your ESG is calculated by the carbon emissions of the holding firms and not the assets themselves). Here, the authors are essentially concluding that ESG ratings are actually poorly correlated w/ the actual emissions of the firms being rated. This is probably because the environmental metrics of ESG scores are forward-looking (thus you can offset current pollution by aggressive reduction projections), but I'm not in this field so I don't know anything more.
Also, there's evidence that moving investment from polluting to non-polluting industries at best has almost no impact, and potentially makes things worse:
Europe never defunded its oil and gas industry. I have no idea of what you are talking about. Germany used to buy Russian gas. The European oil industry is mostly in France and the UK (and Norway).
Anyway ESG never was big in Europe and is now entirely dead. The EU mandates far better reporting in the CSRD and the texts linked to the european green taxonomy with actually meaningful KPIs and financial data having to be disclosed.
A quick look at the gap between ESG scores and EU Green taxonomy alignment results will tell you all you need to know about ESG scores by the way. They are meaningless.
ESG is fairly obviously used to whitewash companies whose main product goes against ESG principles. It's a bunch of irrelevant window-dressing compared to the core concern of what a company is selling yet somehow that never makes it into the ESG metric.
Ex, Tesla has a terrible ESG scores, and Philip Morris has great ones. Is that because PM's diverse board actually outweighs giving people cancer? No, it's just that ESG was designed explicitly to allow companies to hand-wave away the core issue that they are selling bad things.
It could be "a bunch of,,, window-dressing compared to the core concern of what a company is selling yet somehow that never makes it into the ESG metric."
That, however, is the easy part. It's obvious BP is Big Oil. Or that cigarette companies sell poison. Or that gun makers' lobbyists have made the US a needlessly dangerous place. A gun made out of recycled materials is still, obviously, a gun. An ESG score just tells you whether they aren't racist sexist scum, too.
100% this. Also, before we could even begin to score -isms we'd have to give them a concrete definition and that would obviate the need for a third-party to score them.
Yes because these companies just do the math… hmm being truly environmentally friendly is tough for maximizing profits… hmm okay let’s just do a bunch of corporate safe political progressive posturing and marketing on everything else to off-set the E score.
So a non-union mega corp that exploits labor in third world countries gets a decent overall ESG score by making a big show of support of gay/trans or “diversity” goals.
It’s math .. and the bottom line and honestly nonsense.
Often companies with good ESG scores optimize for having good scores. Its like studying to the test and they may have particularly poor results outside of the test that they have studied for. Also, ESG is political and like all things that involve politics, many things that may be good for the score may be bad for the environment. Easiest example to see is in energy with things like nuclear power, and 'biomass' and coal.
Nuclear power if done safely is a much better alternative than say windmills which require extensive mining to make and kill thousands of birds a year.
That's not statistics, though? That's "we think there are fewer ownerless cats in the world than the authors do".
> We don't quarrel with the conclusion that the impact is big, but the numbers are informed guesswork.
Meanwhile the author outright says they're writing this opinion piece because they don't want to see cats banned as pets or people going out and killing a bunch of cats.
Cats kill 2.4b birds a year? Buildings kill 600m? These numbers are completely unbelievable. Were the made up in a left-wing think tank staffed entirely by birds?
I'm not sure that fits, since it might imply it's not intentional.
I think these companies are simply, explicitly, optimizing directly for ESG, for maximum gain, without regards to the "spirit" of ESG. They're rational actors. Why wouldn't they? Just like with taxes, it would be silly to not use the loopholes.
> BP’s ESG performance and outlook are bolstered by an ambitious net-zero emissions target from its operated upstream production by 2050, complemented by a tenfold surge in green spending, 50 gigawatts of renewable-power generation by 2030 and a 40% decline in oil and gas volume. Ecological metrics are favorable, with significant improvement in the 10 years since the Deepwater Horizon disaster, as BP’s safety and spill records are in-line with or above peer averages. BP’s board is among the most gender-diverse, and it has an investor-friendly governance structure and best-in-class ESG disclosures.
So BP, noted exploder of oil rigs in the ocean, gets a boost to their ESG rating by, among other things, promising to do some shit 30 years from now (a promise doubtlessly worth less than the paper it was written on), and hiring more women. What do either of those have to do with BP's actual emissions impact?
ESG exists to rehabilitate the reputations of companies like this.
This point is actually reasonable - a poorly governed company is a risk. Like if a single, unreadonable owner is prone to throwing hissy fits, ridking money in poorly thoigh out schemes and firing people because he woke up on the wrong side of the bed. Then thats a riskier investment.
When I first read about it I thought someone was playing an elaborate joke. It makes no sense why such ephemeral concepts should somehow lead to better investments. If anything, the entire ESG score thing seems like a scam to get people to make bad investments and to then bet against those investments.
The ideal is that companies that cause environmental damage, treat their employees and communities badly, and cheat their shareholders can be boycotted by those who don't want to fund this. Another motivation is those who think bad ESG scores are correlated with worse performance over long period of time. e.g. You think there will eventually be a carbon tax and this will hit coal companies really hard so you don't want to be the bag holder in 2050.
In practice it's just another financial product that first and foremost makes money for the sellers through higher fees. Some ESG funds cheat their customers by failing to perform the specific ESG vetting they promised in writing to do!
> It makes no sense why such ephemeral concepts should somehow lead to better investments.
Each component alone makes sense, if interpreted in a way that is consistent with shareholder capitalism.
1. Environmental. Interpreted in terms of shareholder capitalism, Environmental might mean something like "how well does this company work as a hedge against increasingly likely tail risks, and how resilient will it be to policy changes should those increasingly common tail risks result in secular or policy shifts".
E.g., a re-insurance company that is well-positioned WRT coastal flooding risk but which runs all of its offices on artisanal coal-fired powerplants -- that are a cheap and easy to replace with solar if and when needed -- should have a higher "Environmental" score than a "net zero" re-insurance company that is highly exposed to coastal flooding risk.
2. Social. Interpreted in terms of shareholder capitalism, Social should mean that middle management is not eg over-paying for labor from the Good Old Boys network instead of taking advantage of the cheapest available labor that meets quality requirements.
3. Governance. Interpreted in terms of shareholder capitalism, Governance might mean that you don't give a single founder or board member the ability to over-ride the preferences of the majority holders of equity. Also things like decisions being transparent to shareholders and so on.
The joke isn't ESG per se. The joke is that ESG as implemented makes the completely idiotic assumption that shareholder capitalism can do anything at all to solve political fissures or account for externalized costs.
1. 'Environmental' covers being net-good for the environment, neither meaning not damaging the environment at all nor meaning resilient against environmental changes. So it doesn't hedge anything.
2. 'Social' covers increasing the percentage of employees that are of disadvantaged minority groups, not decreasing the percentage of employees that are anonymously observed to be overpaid/incompetent. It's fun to pretend the one leads to the other, but in reality the exact opposite happens, as minority preference almost perfectly supplants network preference doing exactly the same thing in the same way. This one may as well be the 'G' of ESG, for 'Goodhart'.
3. 'Governance' is the only one that is actually a shareholder value, instead of a progressive-social-club value, and basically is there to launder the other two.
I think even component-wise it wouldn't work well. These components are turned into metrics that can then be gamed. They obviously are gamed: the US corporate world seems to be chock full of token efforts like this.
But if ESG did follow the points as you listed them, then it would probably receive a lot less political flak.
At least in the US, there isn't enough regulation to force companies to provide the data needed for an accurate ESG score. The scoring agencies are essentially just guesstimating based on what the companies are willing to expose. So, they're easily manipulated.
In case it wasn't obvious: the examples are firmly tounge-in-cheek.
The point is simply that markets are designed for maximizing incentives, and "ESG" as commonly defined isn't -- at least definitionally -- aligned with those incentives.
That point is pretty value neutral with respect to ESG goals; ie, believe what you want about how the world ought to be, but don't fool yourself into thinking that throwing you slogans at markets with different incentives will result in outcomes consistent with your sloganeering.
Social and governance are both factors that are going to be more political than results based. Getting a biased third party to evaluate companies on those two factors might as well be a game of darts, because what's considered actually important is going to vary based on the person's politics that's doing the evaluation (or writing the specific evaluation criteria).
Social responsibility is a nice phrase to use when you want to justify anything you want politically, but the only meaning it carries is "you should do what my politics thinks is best".
It's ephemeral because if you give those criteria to a country whose politics you don't like, then you're going to get results that you don't agree with.
The funny thing is that the Environmental metric is the only objective one while the Social and Governance ones can be bullshitted and manipulated. Those three things should have never been coupled. It’s all a scam.
I dunno, I think it could be combined in smarter ways, e.g. min(E,S,G) (or some kind of soft-min)[1]. Or give different weights for more uncertain measures. I think there's a very large amount of knowledge (in various fields) around evaluating those things, and we could have much more if we put some effort; also, we don't necessarily need to make everything 100% based on a small set of metrics. You could have some kind of adaptive evaluation that tries to find the most impactful events for that organization (e.g. trying to track down pollutants and quantify their impact, trying to track down social impacts and quantify them, etc.). In medical and charity fields for example there is QALYs (which do have serious problems still!), but are at least a reference point for impact -- to given an example; in comparing development we have HDI; etc..
Overall, I think trying to improve those things in a systematic way is the only real way to improve them. I want to know how well each company is doing in various areas. We are currently mostly blind to that.
And we should be mindful not to let the ones trying to game and undermine the systems win, and sincerely look at impact in all areas.
[1] Ideally, I think a metric would be able to measure something like a 'meaning of life difference' from different choices (and assign a corresponding metric for say an organization based on certain counterfactuals). Of course that's too difficult in general, but we can strive for example to keep the planet healthy and establish some standard "unit" for a healthy society (could be translated to money, but there could be some issues with that), establishing a trade-off say between say saving someone's life now (through a health intervention), and saving lives in the future by improving planetary conditions (with less pollution). Those things are perhaps surprisingly comparable (and surprisingly linear/additive as well).
There are mentions of Goodhart's Law and it certainly applies somewhat (if we tried simple, naive metrics): but Goodhart's Law doesn't apply when there are real, smart people doing the evaluation, in a dynamic way, using quantitative tools sensibly. And finally there are choices perhaps no such evaluation could capture, questions about what future do we want for ourselves in a broader cultural and artistic sense (which is why in the end freedom to support what you want as an individual is important).
I really think this is going to play a significant part in how we address many large scale issues!
When they say pollute in the headline, they mean only C02, which makes the headline misleading clickbait even for people who don't understand what the S and G in ESG stand for.
> It can very well be that a high-emitting firm is very good at governance or employee satisfaction. There is no strong relationship between employee satisfaction or any of these things and carbon intensity,” Goltz argued.
> “Even the environmental pillar is pretty unrelated to carbon emissions,” he added, with this rating partly determined by factors such as a company’s use of water resources and waste management practices.
It's amazing how something so utterly unremarkable has already inspired 4 unhinged comments.
I hate hate hate how pollution has been reduced to co2 and nothing else. Don't have to worry about global warming if contaminated water and soil kill us all first.
It's more that the other kinds of pollution are local and most of the world will be quick to fine you or throw you in jail if you start to pollute too much of them.
> for people who don't understand what the S and G in ESG stand for.
They stand for Social and (corporate) Governance. I just looked it up myself. I wish these articles would explain that. Even the link on the word ESG is unhelpful.
A very interesting podcast on the topic, arguing that it doesn't make sense to divest from industries that pollute in favor of those that don't pollute — even if your goal is to reduce pollution: https://freakonomics.com/podcast/are-e-s-g-investors-actuall...
I’ll likely get downvoted, but ESG is a way for finance/banking to punish companies that don’t align with their politics.
My favorite part about the whole thing is how it went from “conspiracy theory that will never actually be implemented” to I have to do ESG training at work within a few years.
It's a cynical cash grab, meant to make companies look good, and give Joe Public the impression that "positive change is happening", when 1. It is not, 2. Some change is happening, but what little there is, is mostly negative (implicit bias training rackets, etc.)
But it is primarily a racket. You don't need an ideology or a program for societal control to have a good racket -- in fact, it's best not to have one, so you can cynically jump onto the latest thing for this business cycle.
So I disagree with you completely, despite being strongly critical of the ESG phenomenon. This is a pretty popular position BTW. Many ESG critics (probably such as yourself) are in a bubble, as they think people such as myself are supportive of ESGs just because they are left-wing, when to most left-wingers, it's yet another example in a long history of greenwashing.
Only people in on the racket are for it: McKinsey types, CEOs, fund managers that are worried about activist investors such as Norway's Sovereign Wealth Fund, etc.
The whole ESG discussion is fraught with misinformation.
Different ESG scores mean different things depending on what scoring you’re looking at. So, for example, an environmentally focused organization may rate a company high in ESG because they have low emissions and/or push for green legislation.
However, the more well known ESG scores that we see in the news are often from the financial press and are intended for investors, and often reflect the ESG risk exposure for the companies in question.
This tends to have the ironic effect of making environmentally friendly companies have low ESG scores, and less environmentally friendly companies high scores.
So, for example, Elon Musk complained about getting a low ESG risk score from S&P, but that made complete sense because Tesla was heavily exposed to governmental green policies. Remove CA’s CARB credits, or various green credits and tax benefits, etc and Tesla’s business would suffer.
Exxon, OTOH, was unlikely to see any such impact leading to a lower ESG risk score.
The key thing to understand is that there is no single ESG score. Every company creates different scores based on different factors and intended for different purposes, and their customers decide which ones are effective for their intended purposes and those scores tend to last and do well.
The political backlash against ESG scores is so misplaced.
It’s the equivalent of a personal wealth guru who believes that credit cards are not good for most poor people because they perpetuate their poverty deciding that therefore credit ratings for companies are bad, because both have something to do with the borrowing and lending of money.
> > The political backlash against ESG scores is so misplaced.
Rating agencies should rate the financial risk of stuff (mostly bonds they should try and do it well given that whole mess they created in 08)
They should not be involved in politics. When a rating agency goes beyond number crunching and they start looking at other stuff they are already out of their role. When they start looking at the number of women on the board that is preposterous.
Same is true for Fitch, Moodys, Bloomberg etc.
Everybody wants to be a politician and a virtue signaler these days...too bad that in a country full of politicians and virtue signalers nobody does any actual work.
"Should we bail out the banks" was politics. BP has a massive oil spill, how much will they be fined, are they going to be fined more because they are a British and not American company? How much will fcrashes of Boeing Max cost Boeing? Imagine these crashing planes were from a Chinese company, what would the consequences for the company be ?
The big economic projections are inseperable from politics. Only a naive person will believe otherwise
Maybe, but they are actively encouraging ESG with their lingo in press conferences and reports as opposed to being a neutral observer which solely coldly evaluates the risk of governments ganging up on a company
I thought I wouldn't comment on this because saying it's a scam would just get me downvoted regardless of how I present it - colour me surprised, it seems to be comfortably the majority sentiment.
As far as I can tell ESG is a huge 'begging the question' problem. Companies with good ESG scores do better because we invest in companies with good ESG scores.
But shouldn't the "free market" correct for this? If most people are putting their money into ESG but there isn't a real underlying performance difference, that creates an arbitrage opportunity for people willing to invest in non-ESG?
Sadly, I can already hear the right-wing rebuttal: "the market isn't truly free because of the (bankers) running blackrock! we need govt intervention to ban ESG, then the market will be truly free!"
I think we can conclude that market isn't efficient. There is enough of big enough players that don't even try to invest in optimal manner. Think of pension funds and Sovereign wealth funds. If those are moved to invest ESG related it will naturally drive ESG up.
And really I think whole market is not in sensible shape in general and has not been for a while. Not that crash is imminent or can't be kicked down the road a few more times.
The market isn't free because Vanguard and BlackRock are a duopoly on this. Vanguard isn't the issue though - they do literally nothing besides harvest tiny tiny fees at scale.
BlackRock is a different story - look into their actions around SFH. They're not great.
I was trying to think of an alternative, which the bankers could do, if they wanted, which would be narrowly focused on climate change. Like ESG, the idea is that it's something big financial actors can do without getting government on board.
First thought:
Just bid up the price of oil. Make it too expensive for the refiners. Drive gasoline up to $50/gallon. Every drop on the market, just buy up and do not burn.
There is an issue with this, of course, which is that it still (hugely) incentivises extraction. You don't want to have to physically store the stuff.
But you also can't pay for notional oil left underground: "Yeah, trust us, we didn't sell that barrel to somebody else for additional money."
Second thought:
You could subsidize the hell out of a substitute though, thereby killing demand. Investors poured money into Uber at a loss just so it could eat up market share, right? Why can't you do that with solar panels and electrification? (Where's my electric car paid for by the Saudi Sovereign Wealth Fu... oh.) You can even create network/lockin effects: Electric cars cost half the price, so everybody buys one, so gas stations go out of business.
These are very expensive strategies, but they seem to directly use the price mechanism to try to achieve your goals. Is something cheaper and more efficient possible? Something about efficient markets would seem to imply that that isn't possible, to the extent that efficient markets exist...
Idea 3:
Continuing brainstorming --
- Naked-short futures for beachfront lots in Florida and Bangladesh?
- Buy (underpriced) insurance (basically PUTs) on same?
I feel a creative finance person could come up with lots of things.
If you squint a bit, you can see some parallels to the AI alignment issue. Like it's clearly important to align AI, but what exactly should we align it to? How do we come up with one score that measures goodness?
And it turns out that if you get the score just a tiny bit wrong, it can lead to big issues and people hating it so much they wish there wasn't any score at all.
People keep making tiny or zero progress. Then holding parties and acting like the problem is solved. Then getting shocked when it isn't.
ESG is nice, but it doesn't cure everything, at best it helps empower some people trying to do good. You should not expect it to "work" on a large, statistically significant scale. It was never going to.
The Paris accord is another example: it was an agreement to all just do our own thing and only what we want. So obviously nothing has been achieved.
People really struggle with the idea that something small is not everything...
They may pollute just as much but they definitely make more rainbow-spackled products during Pride Month which helps me feel good about the places I like to put my genitals.
ESG is about how sustainable the COMPANY (stock price) is when looking from those three aspects i.e is it a safe investment to not lose your pension in it.
The survivability of everything around it is not to say irrelevant but at least a few steps removed.
So it tries to assess whether your money is still there, not the planet.
Obviously the marketing tries to make you believe that it’s about the planet.
It's very high level and sparse .. even then the only references to emissions reductions (including carbon) were pretty much: "company must adhere to laws and regulations and must take into account the future emissions reductions that are governmental targets" (paraphrasing).'
I don't see how this is different from what I said. It does not rate how environmentally friendly the company is, it rates whether the company is in compliance with current and it has plans future regulations.
Edit: there is carbon emissions section that is helpfully labelled as one of the things that "CAN be tracked". So this seems to be optional and also the benchmark seems to be self determined by the company rated.
Page 5, Exhibit 2 is PwC's ESG framework. It includes carbon emissions. The criteria used by each ESG ratings agency differs. The major agencies are MSCI, Sustainalytics, Bloomberg, FTSE Russell, ISS Ratings and Rankings, CDP Climate, Water and Forest Scores, S&P Global ESG Score, and Moody’s ESG Solutions Group. All of them include carbon emissions in their Environmental score. For example, this is the methodology used by the largest ESG ratings agency, MSCI: https://www.msci.com/documents/1296102/34424357/MSCI+ESG+Rat.... You might need to register to gain access but it should be free. Continue reading the document and you will quickly realise that the score is not about how the world impacts the company, it is about how the company impacts the world. I understand that ESG has been sold to businesses on the premise that higher ESG scores might improve profitability, but that is an ancillary benefit. The purpose of the score is for marketing. That is, "our business is awesome because we have a high ESG score! Ignore all of the evil things we do!"
MSCI ESG Ratings aim to measure a company’s resilience to long-term,
financially relevant ESG risks.
- Of the negative externalities that companies in an industry generate, which issues
may turn into unanticipated costs for companies in the medium to long term?
- Conversely, which ESG issues affecting an industry may turn into opportunities for
companies in the medium to long term?
ESG is a deeply problematic concept but a world without any "esg" concerns at all is a terminal world with an expiry date fairly close. So the positive attitude is to see the glass as 5% full rather than 95% empty and see what could be the next step.
Unbundling the acronyms is the obvious first concern. They smack of a kitchen sink approach to everything the corporate thinks is a reputation risk. As factors they have no internal coherence.
Then, for each of the underlying issues one must clarify and distinguish whether it is an assessment of current state of the world or future risks (and to whom, what? earnings, value, reputation, clients, mother earth etc).
Finally, even in the most tractable case (accounting for current co2 emissions, which is a tiny fraction of environmental footprint and says nothing about the future) there is a mountain of methodological challenges to climb: Who is emitting, who is enabling it, who is demanding it, who benefits most etc. The modern economy is a giant hairball of dependencies yet we like to ignore all that.
The "ESG period" of the sustainability transition is the financial system taking a first peek at the actual state of the world as opposed to "the number goes up". Its no surprise that many just want to close the lid and pretend they never saw anything. But its not possible unless we accept we are an amoral last generation that devolves into a madhouse.
It took credit ratings a century to mature and they are still heavily gamed / leading to systemic crises. What makes you think this existential question for the unhinged corporate profit-focused entities that dominate modern economic life will get resolved any sooner?
There is a long, long road ahead. But if you look for purpose look no further.
You don't need ESG to practice good corporate responsibility and governance. Carbon credits are a scam. Great interview on this topic by an esteemed NYU professor: https://www.youtube.com/watch?v=vt0C05i7pBs
ESG makes Larry Fink and the rest of the globalist cabal happy. It's much like a magician's sleight of hand, pay attention to our score and ignore what we're really doing.
I find it hilarious the kind of conspiracy theories people lob at BlackRock and Vanguard.
BlackRock maybe I can maybe understand, but Vanguard is like the most straightforward boring investment company in the world. It's literally a shareholder co-op for passive investment funds. People have no idea what they are talking about.
My favorite Vanguard fact is their HQ. It's a shitty set of lowrise buildings in suburban Philly - not some massive highrise in Manhattan or JC. Their whole thing is automation and saving money.
Honestly, I love Vanguard. Their whole shtick was to take the piss out of investment management - "here - we'll just give you a share in anything and you can keep the money". And I appreciate that they have stuck to their principles and kept the thrifty Kirkland Signature vibes.
Tech workers (with their inflated view of their own intelligence) are almost always hilarious. It's half the reason I keep coming back to HN.
If they spent the same amount of time doing research as they do on concocting inane conspiracies and brainless explanations, they may actually be as smart as they think themselves to be.
The two are totally orthogonal. Passive refers to fund management style, and passive management can certainly be based on inputs that require human judgement or decision making.
Eg, the components of the S&P 500 are selected by committee, but obviously SPY is passively managed.
You can have a passively managed fund that is designed to to track an index of companies with a certain ESG score, or to track an index as well as possible while excluding non-ESG components, for example.
In most cases the are not! If you buy an S&P 500 Index you are not buying an ESG fund at all.
For a fund to be passive, all you are saying is that you are following pre-set rules for that fund. And there are any number of investment products these companies make and offer that use any sort of pre-set criteria.
- caring about your investments aligning with your values is good
- investment firms violating civil rights laws and promoting fashionable bigotry using retirement funds to coerce companies into self-destructive behavior is bad
Why are you prefixing bigotry with "fashionable"? Seems like a shibboleth. The only "fashionable" bigotry I can think of right now is anti-trans bigotry, but I don't see how that links to the rest of your statement.
I agree, I see "anti-trans" and accusations of being "transphobic" typically used as a silencing tactic, to stymie and derail discussion.
But these issues really do need to be discussed, as there is real-world harm arising from these medical interventions, and from the non-consensual redrawing of the boundaries around single-sex spaces.
I think you're spot on with your comparison to attitudes towards FGM, it really does highlight the double standard.
> Keeran Beeharee, vice-president for ESG outreach and research at Moody’s, agreed that ESG investment does not necessarily help an investor create a low-carbon portfolio, or any other specific goal.
> “[There is a] perception that ESG assessments do something that they do not. ESG assessments are an aggregate product, their nature is that they are looking at a range of material factors, so drawing a correlation to one factor is always going to be difficult,” Beeharee said.
> “In 2015-16, post the SDGs [UN sustainable development goals] and COP21 [Paris Agreement], when people began to really focus on the issue of climate, they quickly realised that an ESG assessment is not going to be much use there and that they need the right tool for the right task. There are now more targeted tools available that look at just carbon intensity, for example,” he added.
Emission intensity includes CO2 (Carbon Intensity) and also Methane and other emissions.
Not yet they aren't; wait until governments or other highly influential organisations such as banks decide to direct pension funds and the like to invest only according to certain ESG profiles and give individuals a convoluted and difficult option if they wish to "opt out".
If these concerns people have about ESG are so important, they should be passed at the democratic level via legislation. At least that way, people could debate and change the system as needed. You didn't need ESG to get rid of lead plumbing - just an interested government.
Of course these days, we can only have private power, not public power.
Could you please stop posting unsubstantive comments and flamebait? You've unfortunately been doing it repeatedly. It's not what this site is for, and destroys what it is for.
If you wouldn't mind reviewing the site guidelines and taking their intended spirit more to heart, we'd be grateful.
I am sorry, I was not trying to post flamebait. I have provided more context with sources and an explanation of what I was talking about in questioning responses further down in the thread. I would include them in the parent comment if I was still able to edit it.
I really don’t feel like it was a harmful comment, it has net upvotes, the majority here seem to agree with the sentiment.
Your comment pointed directly to race war. That's practically the biggest flamebait there is—especially when you use high-indignation, low-information phrases like "how much you discriminate against $group".
It's important to understand the concept of "generic tangent" - when a thread moves away from the specifics of a given story toward more familiar/bigger/hotter/divisive/sensational things, the discussion is guaranteed to get more repetitive, less interesting, and more likely to turn into a flamewar.
A couple of hiring managers from oil and gas companies have told me there is a strong push to try not to hire white ICs if you can help it. This makes more sense in the context of trying to get a good ESG score to improve their P/E ratio.
What’s remarkable is that apparently none of these hiring managers and executives saw this coming. The stuff they’ve put into writing is wild. Some of the stuff, like aspirational racial quotas, wasn’t even legal under pre-SFFA law. I don’t know who was advising these people.
You need to discriminate against Asians too! Or at least the algorithm I’ve seen used by universities and DEI HR groups ends up discriminating against them most.
This explains why some of the most polluting and damaging companies can be the most woke in their training and marketing. This has led to a major backlash with some companies now advertising themselves as anti-ESG. Splitting out the scores that are determined by independent agencies (not fund managers) could maybe improve the situation, but the botched history will impede any efforts to reform.
The notion of a social score is absurd. You'd first have to define *society*. At least here in the USA, there is no monolithic society. Cultures differ greatly depending on which state you're in and sometimes even within a state.
That's really it, we've no great unifying force as a country except occasional wars which force us to innovate. Otherwise we're usually just riding the wave of those times and really prolonging it at the great expense of everyone except those who know the game, want to play the game, and have enough money to participate in the game.
Its in the words themselves, society is not culture, society means bonding of people/association to a thing, generally implied "civil society". This has nothing to do with some guy being a punk rocker skateboarder anarchist and the other a Mormon and the other a rural farm guy, that they cannot be a part of the same society. That's just not it.
In it they say: “We’re making progress in increasing representation, and currently 50 percent of our workforce in the U.S. is made up of people from underrepresented communities.”
“Please see the Appendix on page 81 for more data on representation”
Then scroll to page 81.
We see that 43% of the company is white (the US is 60% white as of the last census, so white people are in fact underrepresented at Apple)
27.9% of the company is Asian
9.4% black
14.8% Hispanic
So they have stated that they are working on “increasing representation” (hiring) all categories of people except white.
They report these numbers because they are used to calculate the company’s ESG score. More diversity = higher score, where diversity is defined as fewer white people.
A higher ESG score means that ESG funds are more likely to invest in this company, pushing up the company’s value.
This is a literal economic incentive to discriminate against white people.
> They report these numbers because they are used to calculate the company’s ESG score. More diversity = higher score, where diversity is defined as fewer white people.
Where do you see that? That's not part of the criteria for my Vanguard ESG fund.
“There are several organizations and rating agencies that calculate ESG score”
“Corporate Knights: Corporate Knights is a media and research company that publishes an annual ranking of the world's most sustainable corporations. Their methodology evaluates companies based on a range of ESG factors, including carbon productivity, diversity and inclusion, and clean revenue.”
From the Corporate Knights website itself:
“All publicly-traded companies with over US$1 billion in revenue are assessed across 25 key performance indicators, including % sustainable revenue, % sustainable investment, % taxes paid, carbon productivity, and racial and gender diversity.”
Corporate Knights is a free insert in newspapers that gives out a bunch of awards. They are not a fund manager and to my knowledge are not used by fund managers.
In any event they’re talking about board member diversity, not company employees.
This is the entire point of DEI. As Kendi says, the only way to undo past racism and become an equal society is a period of short term discrimination against the privileged. Not saying I agree, but a Nobel is basically a career achievement and dei has been around for what, a decade? Would be surprising if it already lead to a Nobel.
