The Dark Side of ESG Investing
ESG = Environmental, Social, Governance.
These are standards beyond financial that companies and investors are being pushed to adopt into their strategies.
I completely support the environmental movement. We need to take care of our planet for future generations. But there are some real problems with the ESG standards.
1. Why lump societal and governance with environment
Each of the three letters are not really interrelated.
An oil company could be run socially, but it still might not be good for the environment.
2. There are no clearly defined standards
The most successful businesses are in the United States, but ESG is not a US government policy. There are no clearly defined standards for all businesses.
3. Businesses can manipulate the label
If a business buy enough carbon credits can they be labeled ESG? If a company gets the ESG label, but then continues to produce wasteful plastic that is deceiving investors into thinking they are investing in a green company that is really a brown company.
4. Where do you draw the line?
Walmart is a really wasteful company, but they employ over 2,000,000 people. Energy helps lift people out of poverty, but the gas is bad for the environment. Home builders cut down an enormous number of trees, but those trees provide humans with housing that is lacking in America.
Each person must decide for themselves where they want to draw the line with their investment dollars.
Some people may not want to invest in tobacco companies, while other people are fine with it.
5. Do ESG businesses do better than ones that are not ESG?
If the non ESG businesses are doing better than ESG ones investment dollars will continue to flow there.
6. Maybe instead of ESG investing, we could require businesses to donate a portion of revenue to non profits doing climate work
Of course that would require an act of congress.
No comments.