ESG, in its current form, is an evolutionary placebo with incurable outcomes derived from non-treatment.
For the uninitiated, ESG is an abbreviation financial institutions now fanatically use to imply investment allocations with a conscious impact of investments aiming to be mindful of the Environment, Social impact, and the need for Governance. Large investment firms and money managers, such as BlackRock and KKR, are now using ESG as a pivotal component of their investment strategy, made public on their websites and in the letters they send to their investors.
The term ESG was born from the realization that the chase for cold-hard investment returns, despite accruing essential reserves, may induce an adverse side-effect. An outcome damaging to the very members of the public who have entrusted their financial reserves to those institutions.
For example, a pension fund that directly or indirectly invests in, say, a tobacco company will produce accelerated atrophy of its member base, as cigarette smoking is now, 30 years later, responsible for the third-leading cause of death to Americans, with a waterfall of consequential diseases to boot. Not a grand investment strategy to grow the renewable contributions to the fund.
So, institutions with billions of public assets under management (AUM) now push the mandate of ESG to their money managers, each applying their thesis of ESG, deploying proprietary compliance metrics, and relying on third parties to establish a rating system for compliance to ESG. On the surface, a beautiful thing and an endeavor I even initially applauded until I dug in a little deeper.
In its current implementation, I soon discovered that ESG is an evolutionary placebo, the infatuation with its principles leading to a false sense of goodwill, social security, and evolutionary integrity.
The most glaring sign of ESG’s make-believe is its correlation to sustainability. As a devout reader of my blogs, using the term sustainability should immediately fire off your bullshit detector as quickly as it does mine. Sustainability is an oxymoron, as nothing in nature is sustainable. Our universe is expanding at an ever-increasing rate. The prolonging of any proxy of sustainability is predicated on the continuity of renewal at its core. The principles of the innate relativity of renewal are often opposed to the pretense of absolutism conveyed by sustainability.
Without the proper attachment to evolutionary relevance and cause, ESG is not the financial medicine it portrays. There is no need to investigate further and invalidate the consequential implementation of ESG or question the third-party rating systems (as a recent Pensions and Investments article alluded to: “Think tank takes ESG rating agencies to task“). By definition, improper recognition of cause leads to the inappropriate deployment of compounding consequences. And a suboptimization of undesirable consequences will not extrapolate to evolutionary cause that precludes those consequences.
Despite the above, I did investigate the proof delivered by the ESG pudding. As I predicted, Confirming how many ESG-certified investments, as in companies I am familiar with, are in blatant violation of the most fundamental principles of freedom that drive the renewal of humanitarian value.
Financial institutions have a splendid opportunity and a severe fiduciary obligation to determine the evolutionary integrity by which funds are deployed and enhance the predictability and repeatability of returns. Financial institutions must become better informed about what drives evolutionary integrity to drive humanitarian value.
I welcome them all to my masterclass for asset managers.