ESG investing is an aesthetic.
Please yourself, but don't fool yourself.
ESG stands for Environmental, Social, and Governance investing. It is a marketing tool. I approve of it. It makes investors happy and I want people to be happy. But I don't harbor illusions about ESG. It is a feel-good pointless gesture.
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| Calvert Funds brochure photo |
In yesterday's blog post I said people who wanted to protect the planet by doing something to reduce use of fossil fuels should buy an electric car powered by a home rooftop electric system. Then, readers should destroy their former gas-powered car. If a person sold or gave it away, it would still be on the road.
It is the same with stocks. Harvard is divesting from fossil fuels. Avoiding those companies is a near-universal part of ESG screens. When Harvard sells its shares they are shifting their ownership to someone else. That changes nothing. At least Harvard might choose to cast its proxy votes for oil company directors who wanted to steer their companies toward alternative fuels. Who knows what the new owners of the stock will do?
"Socially conscious investing" went from a tiny niche with the Calvert Funds in the mid-1980s into a mainstream investment option for 401k providers. Each ESG investment manager addresses slightly different investor concerns: Fossil fuels, defense contractors, tobacco, or alcohol. Investment managers have big positions in Alphabet (i.e. Google), Apple, Amazon, and Microsoft. We all know something to dislike about each of them. Google sucks up advertising dollars and has destroyed newspapers. Apple assembles its phones in Chinese sweatshops and discards toxic waste there. Amazon has destroyed specialty retail stores that gave communities character, and it works their warehouse employees to exhaustion. Microsoft is a monopoly that squashed competitors and now forces consumers to pay renewing fees.
In the financial sector, both Moody's and Standard and Poor's meet the ethical screen and are included in many portfolios. Both companies enabled the financial crisis. The ratings agencies dashed off AAA ratings for pools of junk mortgages, happy to collect the fees for their imprimatur. The AAA rating allowed banks to borrow against them as if they were risk-free. Had either rating agency done their duty to give an honest assessment of quality and risk, banks could not have packaged and sold toxic investments to pension funds, defrauding their customers. Neither could banks have destroyed themselves by carrying on their books junk bonds rated AAA.
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| Forbes |
I am left with mixed feelings. Home Depot isn't good, but maybe it isn't all bad--like every other company.
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| Not this Oshkosh |
If a person just looks at the image and ad copy on the prospectus wrapper, being assured that the investments are "ones you can feel good about while aligning your investments with your values," then ESG investments are great. Investors can be comfortable in their ignorance. But the moment one looks into a prospectus to see what companies are in the portfolio one sees nuance and problems. What one is mostly getting is another index fund that is light on oil, tobacco, and aerospace. There is nothing wrong with that. If it pleases a reader to own an "ethical investment," it is harmless to do so. Just skip the details. It will just make you feel you aren't really changing anything, and you aren't.
The way to make a difference in fossil fuels takes sacrifice. Selling something changes nothing. We make a difference by using less.
10 comments:
Yeah, put another way humans will need to adapt which means changing behavior.
On the geological time scale climate change looks to be a millennial event; it will take several hundred years to reverse but to what? We can't go back to a pre-oil era, hence the term, "alternative energy". The choices are not great. Efficient, net-zero technologies are coming, but until then humans will need to reconsider many aspects of modern life, which is political.
On a fundamental level the climate crises is economic. This has many complexities, and I'd suggest one place to start would be the wealth hierarchy being a major impediment to making progress. Another is international. Enormous resources are wasted by all the armies around the world. It can't happen too soon, but I predict a demilitarization of developed countries as the cost of climate change becomes universally devastating to economies worldwide.
Yes, we need to change our behavior, and part of that is changing our investment priorities.
Fossil fuels are one of America’s top exports. We also lead the world in exporting weapons of mass destruction. The former is quickly degrading our planet’s quality of life, and the latter is slaughtering the people on it. Not investing in them is a matter of aesthetics – things look better when they aren’t polluted or bombed – but it also has to do with not contributing to the destruction and terror going around. If, as a result, we get a somewhat smaller return and don’t die as rich, so what?
To cope with climate change, we should take rational cost/benefit approaches:
* expand nuclear power, which emits no CO2
* do a Manhattan Project-scale look into increasing the uptake side of the CO2 cycle
(e.g. ocean fertilization)
* invest in mitigation: the Dutch have been living quite successfully below
sea level for centuries -- maybe sea level rise doesn't have to be the kind of
disaster that climate alarmists claim it will be
I like Vice funds. It feels so good to be so bad. I wish they worked, I might invest in one.
Michael T.
The U.S. already has over 90,000 metric tons of nuclear waste that remains radioactive for eons, and no permanent repository for it. Producing more doesn’t sound very rational.
Instead of investing in a Manhattan-scale project to try and make the world absorb more of our CO2 or mitigate its disastrous effects, why not invest in emitting less?
Mike,
Because that’s just not going to happen. Look at how many coal fired electric generating plants China is building.
So, we aren't investing in something we desperately need "because that's just not going to happen." I wonder if that's what those responsible for the safety of the bridge that collapsed in Pittsburg kept telling themselves. You'd think after all the years our species has lived on this planet that we'd have learned by now it's a lot cheaper to prevent problems than it is to fix them.
In fact, it will happen because eventually we won't have a choice. It would just be easier on our offspring if we addressed the issue sooner rather than later.
Mike,
No sale on that bridge…. :-)
This will be hard to do when we have a Congress whose majority doesn't even believe in evolution.
Every person who has children or cares about children should care about protecting the planet.
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