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> It makes no sense why such ephemeral concepts should somehow lead to better investments. Each component alone makes sense, if interpreted in a way that is co
by ke88y 3y ago
> It makes no sense why such ephemeral concepts should somehow lead to better investments.
Each component alone makes sense, if interpreted in a way that is consistent with shareholder capitalism.
1. Environmental. Interpreted in terms of shareholder capitalism, Environmental might mean something like "how well does this company work as a hedge against increasingly likely tail risks, and how resilient will it be to policy changes should those increasingly common tail risks result in secular or policy shifts".
E.g., a re-insurance company that is well-positioned WRT coastal flooding risk but which runs all of its offices on artisanal coal-fired powerplants -- that are a cheap and easy to replace with solar if and when needed -- should have a higher "Environmental" score than a "net zero" re-insurance company that is highly exposed to coastal flooding risk.
2. Social. Interpreted in terms of shareholder capitalism, Social should mean that middle management is not eg over-paying for labor from the Good Old Boys network instead of taking advantage of the cheapest available labor that meets quality requirements.
3. Governance. Interpreted in terms of shareholder capitalism, Governance might mean that you don't give a single founder or board member the ability to over-ride the preferences of the majority holders of equity. Also things like decisions being transparent to shareholders and so on.
The joke isn't ESG per se. The joke is that ESG as implemented makes the completely idiotic assumption that shareholder capitalism can do anything at all to solve political fissures or account for externalized costs.
- Aerroon 3y agoI think even component-wise it wouldn't work well. These components are turned into metrics that can then be gamed. They obviously are gamed: the US corporate world seems to be chock full of token efforts like this. But if ESG did follow the points as you listed them, then it would probably receive a lot less political flak.
- Exoristos 3y agoWow, this is chilling.
- ke88y 3y agoIn case it wasn't obvious: the examples are firmly tounge-in-cheek. The point is simply that markets are designed for maximizing incentives, and "ESG" as commonly defined isn't -- at least definitionally -- aligned with those incentives. That point is pretty value neutral with respect to ESG goals; ie, believe what you want about how the world ought to be, but don't fool yourself into thinking that throwing you slogans at markets with different incentives will result in outcomes consistent with your sloganeering.
- Cornbilly 3y agoYeah, ESG data is kinda crap at the moment. At least in the US, there isn't enough regulation to force companies to provide the data needed for an accurate ESG score. The scoring agencies are essentially just guesstimating based on what the companies are willing to expose. So, they're easily manipulated.
- pie_flavor 3y agoExcept 1. 'Environmental' covers being net-good for the environment, neither meaning not damaging the environment at all nor meaning resilient against environmental changes. So it doesn't hedge anything. 2. 'Social' covers increasing the percentage of employees that are of disadvantaged minority groups, not decreasing the percentage of employees that are anonymously observed to be overpaid/incompetent. It's fun to pretend the one leads to the other, but in reality the exact opposite happens, as minority preference almost perfectly supplants network preference doing exactly the same thing in the same way. This one may as well be the 'G' of ESG, for 'Goodhart'. 3. 'Governance' is the only one that is actually a shareholder value, instead of a progressive-social-club value, and basically is there to launder the other two.
- ke88y 3y agoI think you missed the tongue-in-cheek tone of my comment, and the last paragraph.