Sometimes, I just get infuriated by nonsense that I read about sustainable investment and ESG. Sometimes, I need to let out the rage. So I'm going to keep a list of the most nonsensical things I read repeatedly and welcome additional contributions below:
- Nonsense #1: "ESG is in everything we do as investors / ESG factors have always been considered in all of our funds"
- Response #1: Really?! This sounds very like companies who argued that "we have always been responsible citizens" only to find that the requirement to produce a sustainability report revealed that there were a lot of areas they could improve on. Any investor making a claim like this should be required to back it up by publishing their latest internal research note on Danone, Ford, GSK or any company on demand to demonstrate how sustainability factors are explicitly valued in analysis.
- Nonsense #2: "We need more granular and comparable ESG datasets"
- Response #2: Only if you are a quant investor ... and there are very few specialist SRI/ESG quants. Active investors certainly don't need this and passive investors typically need simple screening not multi-factor datasets.
- Nonsense #3: "The quality of ESG data is a major problem"
- Response #3: The whole investment business is about pricing and resolving information asymmetries. This is no different. Stop moaning and find/exploit information advantage.
- Nonsense #4: "Divestment is better than engagement' or 'engagement is better than divestment"
- Response #4: Both have merits depending on the situation but both are blunt tools and both are fundamentally worse than investment decision-making that factors sustainability transition into first discussions with companies and then investment-decision-making (not on a policy-basis but on a reasoned investment basis.)
- Nonsense #5: "ESG research provision is turning into an oligopoly"
- Response #5: Data provision isn't an oligopoly. At a stretch, ratings could be seen as one. Research is massively undersupplied and needs support.
- Nonsense #6: "ESG"
- Response #6: Sustainable development imposes six requirements on companies Financial (return to shareholders), Environmental, Social, Economic (support of the wider economy), Ethical & (corporate) Governance. Why do we use a taxonomy that limits us to three?
- Nonsense #7: "ESG ratings need regulating"
- Response #7: Sure. If you think you can actually do it and want to reinforce them with regulatory legitimacy. The first impact of most regulation is to empower incumbents. However, as most call for this comes from companies who are not imaginative or brave enough to communicate their sustainability activities to investors in a more sophisticated way, I wish them well in what they ask for.
