2022 Theme: Peak ESG - It Is Official, The ESG King Has No Clothes
This newsletter has, since its very inception, been extremely - perhaps even exceptionally - critical about the ESG investing industry fad.
This is not because we do not take climate change seriously. As we have stated again and again, the truth is exactly the opposite. Rather we feel that both the lack of substance and the framing of the ESG approach are deeply counterproductive for achieving its stated goals. If that is the case then there is really no option but to oppose it vociferously.
As we have said before, the only thing worse than doing nothing is to pretend to do something and spend your energy loudly proclaim it for all to hear.
The dichotomy might be:
If you wanted to actually stop climate change then you would come up with a workable solution that would likely put a price on carbon and work towards a collective goal with long term planning and incentives.
If you wanted to talk green and sustainability but do as little as possible, you would come up with something like ESG - a snappy acronym that can mean a thousand different things to a thousand different people and so therefore means nothing at all.
It isn't a recipe for a greener planet. All ESG has proven is that it is a recipe for greenwashing.
Well, now our collective lack of seriousness about ESG is coming home to roost.
Someone from inside the complex has finally pointed out the poverty of the ESG framework and been widely panned for his troubles. Elsewhere, a growing countermovement is gathering steam.
The latter is very worrying. The former, however, could prove useful.
In the next two stories, we discuss both.
There have been two recent incidents that brought the growing conflict over ESG - which was, let's be honest, previously a topic for specialists and wonks - to the attention of the mainstream.
The first is that Elon Musk had a lot of fun pointing out the absurdity of S&P Global dropping his company, Tesla, from their ESG index while keeping the likes of oil giant Exxon included.
Nothing underlines the inherent challenges and lack of seriousness of the ESG endeavor like this "objective" decision.
Musk, an individual who has been obsessed with climate change for decades and has forced the entire combustion engine vehicle industry to rapidly shift towards electrification, rightly ridiculed the move and used the opportunity provided to point out the utter emptiness of a paradigm that could make this claim seriously.
The second event was a recent speech by Stuart Kirk, a man who uncomfortably occupies (occupied?) the role of HSBC's head of responsible investing (!) in which he argued that: "climate change is not a big source of investment risk."
This speech, despite amusingly having been previously approved by his employer, has led to Kirk's suspension and an incredible amount of predictable shock and horror in the usual permanently outraged and hyperventilating elite circles.
You can also watch his speech here:
Kirk's talk was likely both too irreverent and too brash but it is worth listening to and thinking carefully about exactly what he is saying. Kirk is hardly a fool and there is a very large element of "the ESG emperor has no clothes" that is causing the impressive amount of sputtering outrage.
But in other quarters it was quietly less criticized and even welcomed with relief.
As one of ESG's most trenchant critics - and Blackrock's former sustainable investing Chief Investment Officer! - Tariq Fancy put it:
Kirk has “done us a service” by “infusing a dose of honesty into a debate that is otherwise leading us nowhere”.
And even though we might criticize the tone of Kirk's presentation, we aren't sure it wasn't effective. The essential quality of impishly pointing out the hypocrisy of an industry while presenting directly to many of that same industry's leading lights that was pretty brilliantly savage and strangely gives us hope.
Why? Well it suggests that even in this cynical age, the whole notion of ESG in its current format may be running out of steam.
In future years we will hopefully look back on Kirk's talk and see that it marked a moment where we finally, changed course - away from superficiality and unseriousness and towards some sort of workable solution. One where we don't pretend that we can have our climate cake and eat it too by using complicated data mining and statistical contortions.
It isn't the only data point either. ESG funds have, for the first time in a long time, taken a battering and seen major outflows:
This is great! For too long they have charged high(er) fees for the same rough basket of stocks and only the thinnest patina of "analysis."
The ESG Emperor has no clothes. Someone prominent had to say it and hopefully this will serve as a turning point on the critical issue of climate change.
Less discussed was the fact that Kirk's talk actually raised a very interesting question.
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