ESG (Environmental, Social, and Governance)
A little over a year ago (June 13, 2021) we used this space to talk about “Stakeholder Capitalism.”
Under that woke umbrella, it’s postulated that companies should no longer have the single focus of serving its shareholders by making a profit, but that a corporation needs to focus on meeting the needs of all its stakeholders: customers, employees, partners, the community, and society as a whole.
We noted that the “Kool Aid” of stakeholder capitalism vs shareholder capitalism was akin to companies acting as extensions of governmental socialistic ideals. I did not argue management should ignore the other ‘stakeholders,’ but to treat them equally with respect and dignity. I also noted companies should assume some responsibility in the community(ies) where they operate. But I also noted that “woke” means “broke” because if a company loses focus on why and how it exists – to make a profit – it won’t be around very long.
But the proponents of stakeholder capitalism were not finished. It was quickly followed by an add-on theory of ESG.
What is ESG?
First of all, it’s short for “environmental, social and governance.” It evolved from a UN PRI (Principles for Responsibility) report in 2006.
Here’s what it advocates and encourages not only for businesses, but for countries.
Environmental – Preservation of our natural world
- Climate change
- Carbon emission reduction
- Water pollution and water scarcity
- Air pollution
- Deforestation
- Greenhouse gas emissions
Social – Consideration of humans and our interdependencies
- Customer success
- Data hygiene and security
- Gender and diversity inclusion
- Community relations
- Mental health
Governance – Logistics and defined process for running a business or organization
- Board of directors and its makeup
- Executive compensation guidelines
- Political contributions and lobbying
- Venture partner compensation
- Hiring and onboarding best practices
ESG is the distillation and expansion of the UN’s adopted 17 “Sustainable Development Goals.” I’m not going to list all of them. Suffice to say included are things we would all agree with such as ending poverty, food security, and quality education. But also included are such things as gender diversity, taking urgent action on climate change, ensuring sustainable consumption and production patterns (I don’t know what that means), and access to green energy.
This exercise is now taught in many universities. It has even come up with a measuring system for ESG – like a grade for how woke to ESG you, your organization, your city, your state, and your country are.
Using ESG, we are to decide on the companies we will invest in and where those companies are located. Obviously if ESG controls the capital of any society it controls everything. Most companies listed on the major exchanges now are given an ESG score.
The investors following ESG measures, which the SEC has recently ‘standardized,’ are currently mostly limited to public employee pension funds, with an estimated 6% of individual investors concerned about and/or making decisions based on ESG scores. They’ve now added a ‘carbon risk score’ to determine if a company or country is considered on the bandwagon.
As noted earlier, there are some large companies that appear to be drinking the Kool Aid, but it’s too soon to conclude anything about its impact on investments in those companies.
It’s not too soon to look at the results that adoption of ESG by countries has had. Two examples:
Ghana – a small country in western Africa – was prospering until 2015 when the government adopted the Green New Deal of ESG. It now can’t keep the lights on and since fertilizer – made using petroleum products – is no longer allowed people are starving. Ghana, however, has achieved a near perfect ESG score.
Add Sri Lanka, another prosperous country which went “ESG” in 2016. The theory is that a ‘responsible’ governmental approach to a prosperous future would be a no fossil fuel approach to electricity and farming. With an ESG score in the 90’s, the country’s leader just fled the nation in the face of insurrection of the starving public.
The Netherlands just increased its ESG score by outlawing chemical fertilizer in this farm rich country. The farmers are furious and protesting against an ending not looking to be a happy one for any Holland citizen.
What does all this mean for us in the US?
So, who and how are ESG scores determined? Well, there are a number of companies who are cashing in on selling this stuff including MSCI, Sustainalytics, Gartner, Forrester, and Ernst & Young. They provide various indices on environmental/climate change mitigation efforts and strategy – including suppliers, social, governance, and transparency. I applaud these companies who recognized a niche market and developed a product for it. I’m sure they’re making a profit.
We have the “woke”-ster bunch advocating and lobbying for total adoption of ESG and the 17 UN Goals – which they wrote. The US has an ESG score of 56% – a terrible one in those woke brains.
We don’t need much more evidence of the folly of ESG than to look at what’s happened in the last 1 ½ years when ESG was adopted by the current administration. Diversity, Equity, and Inclusion are part of the agenda. Fossil fuels have been curtailed and we’re getting poorer. The power grids in CA and TX – controlled by people who have swallowed the Kool Aid and arbitrarily reduced the use of fossil fuels for electricity – now suffer blackouts. Do we want a high ESG score at the moment? I don’t think so.
Everything else seems politicized these days, so let’s politicize investing.
I’ll listen to anyone who can show me how and where ESG has worked to improve life and living for the average worker and family – or made a for-profit company more profitable and met the expectations of the overwhelming majority of investors.
I’m still listening.
It’s the ‘Kool Aid,’ swallowed then served to us by the ‘all-knowing elite’ who have never seen a trench, much less been in one.
References:
https://corporatefinanceinstitute.com/resources/knowledge/other/esg-environmental-social-governance/
https://www.diligent.com/insights/esg/
https://www.esgthereport.com/who-sets-an-esg-score/#What-is-Sustainalytics
SPIDER Bites
Rotary is an international club that that works to fight disease, promote peace and education, and improve all aspects of local communities. I’ve had membership (5 different clubs) since the early ‘70’s. Worldwide, Rotary has circa. 46,000 clubs with 1.4 million members. About 25% of Rotarians are women – internationally. I don’t know the numbers for the US, but I speculate the female percentage is much higher here. It certainly is in my club. Our International President – from Canada – and my club’s president this year are women.
Oops. President Biden has COVID – again.
As expected, the Federal Reserve raised interest rates another 0.75% last week, raising the fed funds rate – the short-term rate banks charge each other – to 2.5%. We’ll likely see more increases as the Fed tries to catch up with reality and tame inflation to some degree.
What’s known as the ‘chips bill’ was passed by the Senate last week even after Sen. Schumer removed the provision disallowing companies to manufacture chips in China using research generated in the US. Why did he do that? I think we still call it bait and switch. Follow the money. The bill, carrying a $280B price tag, provides $52B in subsidies to chip manufacturers to build domestic semiconductor plants – and a pile of money to the National Science Foundation (NSF) to provide grants to companies and universities -$100B in authorizations over 5 years – for additional research and funds for start-up companies in various US regions. With the removal of the key section by Schumer, after all this US spending, companies can still manufacture chips in China, where most are made now – just the opposite of the originally stated purpose of the bill.
Members of the Biden administration are now attempting to redefine the word ‘recession.’ For time infinitum 2 consecutive quarters of negative GDP growth have signaled economic recession. That 2nd negative consecutive quarter became official last week. But now we’re supposed to believe differently. We’re not told the new definition. It’s certainly beyond economics – and truly lame. In Orwell’s 1984, a blog post noted that, “By controlling the language, Big Brother controls the way that the people think. With a limited vocabulary, the people are limited in how much they can think, as well as, what they think about.” Have we arrived?
Sad to say it’s a dangerous time to be on a police force. Almost daily we hear of another officer being shot or otherwise attacked somewhere – 49 killed so far this year while the public witnesses a revolving door for criminals. When public safety is ranked behind ‘social justice’ for the criminals we have anarchy.
The international space station has been run and occupied for 22 years by Russia, the U.S., Europe, Japan and Canada. Russia announced last week it will pull out of the arrangement after 2024.
The saddest story of the week: Sen. Manchin has been brought into the Democratic Party’s big government, tax and spend fold. I wonder what the moderate Democrat from WV gets for his acquiescence. His constituency certainly doesn’t benefit. Meanwhile, another $433B is slated for climate change and healthcare spending – and raising taxes by $739B. Spend more and tax more is the plan. What inflation? What recession?
