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Kind of ironic to note that the world is upside down right now. Public companies, which are regulated precisely to protect the financial interests of sharehold

Kind of ironic to note that the world is upside down right now. Public companies, which are regulated precisely to protect the financial interests of shareholders, are forgoing profits for the sake of their ESG scores. Meanwhile, private equity, which is not regulated in the same way and theoretically could be more easily managed towards objectives other than profit, are smeared as “profit obsessed.” Wild times

hotpotamus 3y ago
Who's forgoing profits for ESG scores? That would be pretty novel to me.
- hammock 3y ago
  Because of the ESG rule* (the repeal of which was the first veto Biden ever used), which allows pension fund managers unprecedented flexibility in their fiduciary duties to choose funds that align with what some see as “woke agenda” goals as opposed to another profit motive, all kinds of public corporations are seeking higher ESG scores, at the expense of profits, so they can stay in these pension funds. It’s controversial because pension managers control over $12 trillion of OPM (other peoples money) in the US, and the great centralization of control of these funds in a few politically connected firms, and have been thus turned into a political instrument of change instead of just a personal returns manager/maximizer. However you want to judge it good or bad, it’s a serious market distortion *The ESG rule—Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights—permits retirement plan fiduciaries, such as 401(k) plan sponsors, to consider climate change and other ESG factors when they select investment options and exercise shareholder rights, such as proxy voting
  - hotpotamus 3y ago
    But it doesn't sound like it actually happened?
    - hammock 3y ago
      What is “it” and what makes you say that?
      - hotpotamus 3y ago
        You said the ESG rule was vetoed.
        lmm 3y ago
        Repealing the rule was vetoed.
- deleted 3y ago
  [deleted]
version_five 3y ago
Public markets are where all the dumb money is, and are much more subject to politics and sentiments. Companies that went public basically did to to offload their company on the public so they could get money.
542458 3y ago
Good ESG scores do not appear to be correlated with poor profitability. https://www.stern.nyu.edu/sites/default/files/assets/documents/NYU-RAM_ESG-Paper_2021%20Rev_0.pdf https://www.stern.nyu.edu/sites/default/files/assets/documen...
- hammock 3y ago
  That’s one analysis. Here’s another. Researchers reviewed shareholder value created by firms with high and low ESG ratings—scores provided by professional rating agencies. Their conclusion: “Telling firms that being socially responsible will deliver higher growth, profits and value is false advertising.” https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3557432 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3557432 What they found is also apparent on a macro basis. Over the past five years, global ESG funds have underperformed the broader market by more than 250 basis points per year, an average 6.3% return compared with a 8.9% return. Despite tens of trillions of ESG investments, investors haven’t done very well nor generated much good
  - AlphaSite 3y ago
    How much if that is because of the tech bubble bursting? Tech and ESG are strongly correlated. I don’t think it helps grow a company, but equally I don’t think on a macro scale it actually hinders either. So if it’s a net 0 why not do good and make money? It’s not an either or.
    - hammock 3y ago
      A discussion of the issue you may find interesting: https://www.aier.org/article/esg-as-an-artifact-of-zirp/ https://www.aier.org/article/esg-as-an-artifact-of-zirp/ TLDR, tech bubble and ESG likely correlated to a common confounder
  - dv_dt 3y ago
    There is a difference between esg being individually good for companies and esg performing well in funds. That perhaps speaks more to fund management than esg itself. Most funds perform more poorly than broad indexes for example.
rhaway84773 3y ago
What’s funny is the anti-ESG crowd don’t even understand what an ESG score is. It’s not about how environmental or socially conscious a company is. It’s about how exposed a company is to environmental or social or governmental risks. It’s one thing for random HNers to not understand this. But then you have Musk who should know better and probably does, but chooses to instead misinform his massive following. No one was tracking these very real risks until recently. The risk that a company highly exposed to California homes might possibly be at risk of the increasing number of wildfires. Or one dependent on the Russian market may lose it entirely because of sanctions.
- fallingknife 3y ago
  That's not what it is. https://money.usnews.com/investing/news/articles/what-is-an-esg-score https://money.usnews.com/investing/news/articles/what-is-an-...

hotpotamus 3y ago

Who's forgoing profits for ESG scores? That would be pretty novel to me.

hammock 3y ago
Because of the ESG rule* (the repeal of which was the first veto Biden ever used), which allows pension fund managers unprecedented flexibility in their fiduciary duties to choose funds that align with what some see as “woke agenda” goals as opposed to another profit motive, all kinds of public corporations are seeking higher ESG scores, at the expense of profits, so they can stay in these pension funds. It’s controversial because pension managers control over $12 trillion of OPM (other peoples money) in the US, and the great centralization of control of these funds in a few politically connected firms, and have been thus turned into a political instrument of change instead of just a personal returns manager/maximizer. However you want to judge it good or bad, it’s a serious market distortion *The ESG rule—Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights—permits retirement plan fiduciaries, such as 401(k) plan sponsors, to consider climate change and other ESG factors when they select investment options and exercise shareholder rights, such as proxy voting
- hotpotamus 3y ago
  But it doesn't sound like it actually happened?
  - hammock 3y ago
    What is “it” and what makes you say that?
    - hotpotamus 3y ago
      You said the ESG rule was vetoed.
      - lmm 3y ago
        Repealing the rule was vetoed.
deleted 3y ago
[deleted]

version_five 3y ago

Public markets are where all the dumb money is, and are much more subject to politics and sentiments. Companies that went public basically did to to offload their company on the public so they could get money.

542458 3y ago

Good ESG scores do not appear to be correlated with poor profitability. https://www.stern.nyu.edu/sites/default/files/assets/documents/NYU-RAM_ESG-Paper_2021%20Rev_0.pdf https://www.stern.nyu.edu/sites/default/files/assets/documen...

hammock 3y ago
That’s one analysis. Here’s another. Researchers reviewed shareholder value created by firms with high and low ESG ratings—scores provided by professional rating agencies. Their conclusion: “Telling firms that being socially responsible will deliver higher growth, profits and value is false advertising.” https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3557432 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3557432 What they found is also apparent on a macro basis. Over the past five years, global ESG funds have underperformed the broader market by more than 250 basis points per year, an average 6.3% return compared with a 8.9% return. Despite tens of trillions of ESG investments, investors haven’t done very well nor generated much good
- AlphaSite 3y ago
  How much if that is because of the tech bubble bursting? Tech and ESG are strongly correlated. I don’t think it helps grow a company, but equally I don’t think on a macro scale it actually hinders either. So if it’s a net 0 why not do good and make money? It’s not an either or.
  - hammock 3y ago
    A discussion of the issue you may find interesting: https://www.aier.org/article/esg-as-an-artifact-of-zirp/ https://www.aier.org/article/esg-as-an-artifact-of-zirp/ TLDR, tech bubble and ESG likely correlated to a common confounder
- dv_dt 3y ago
  There is a difference between esg being individually good for companies and esg performing well in funds. That perhaps speaks more to fund management than esg itself. Most funds perform more poorly than broad indexes for example.

rhaway84773 3y ago

What’s funny is the anti-ESG crowd don’t even understand what an ESG score is. It’s not about how environmental or socially conscious a company is. It’s about how exposed a company is to environmental or social or governmental risks. It’s one thing for random HNers to not understand this. But then you have Musk who should know better and probably does, but chooses to instead misinform his massive following. No one was tracking these very real risks until recently. The risk that a company highly exposed to California homes might possibly be at risk of the increasing number of wildfires. Or one dependent on the Russian market may lose it entirely because of sanctions.

fallingknife 3y ago
That's not what it is. https://money.usnews.com/investing/news/articles/what-is-an-esg-score https://money.usnews.com/investing/news/articles/what-is-an-...