ESG’s Problem Is Not Communication, But Adherence To Nature

“In an article and video interview produced by Top1000funds, “Bridgewater’ss Carsten Stendevad andPGGM’ss Jaap van Dam discuss the need for more clarity and better communication in sustainability and explore how investing for impact is reshaping investment strategies.”

In an article and video interview produced by Top1000funds, “Bridgewater’s Carsten Stendevad and PGGM’s Jaap van Dam discuss the need for more clarity and better communication in sustainability and explore how investing for impact is reshaping investment strategies.”

I could not disagree more.

Fuzzy Logic

First, the finance community has done an impressive job of communicating the need to reinvent itself around investing with environmental morals in mind. Based on the U.N.’s Sustainable Development Goals, asset owners now pepper their investment products with a-la-carte ESG compliance, even retroactively padding themselves on the back.

Second, made abundantly clear from the conversation with Carsten and Jaap is that ESG is a consequence, not a cause, of newfound investment strategies. In gastronomy, ESG is akin to a sauce you put over a meal to make it taste better.

Therefore, ESG cannot be called a strategy, let alone become the righteous method of reshaping the investment world.

Low Expectations

If not for the problematic humanitarian consequences of deploying the wrong vectors for humanity, it is almost hilarious to hear Bridewater’s Carsten Stendevad talk about three-dimensional portfolios. Risk and return axes are now supplemented by ESG etiquette, the three movable vectors of new-age investing, with an enormous thesis drift.

Suspend the major fallacies innate to ESG I have pounded on for so long. As Einstein discovered one hundred years ago, the world revolves around four dimensions. Assuming the axes are correct (they are not), investment allocation strategies fall one crucial dimension short of tracing human capacity and ingenuity.

Indeed, asset managers trying to understand how the real world works is like a five-year-old child taking apart a combustion engine and figuring out how it creates torque. They need education or replacement; investing in humanity is not kids’ play.

Slave To Love

Of course, it sounds great to say you are an asset owner rather than an asset allocator. Still, the impetus for responsible investing comes from the people, the public, who are the causal origination, spawn renewal, and must ultimately yield returns from the investment funds.

And as the public wants more responsible investing, the pressure on Bridgewater and PGGM increases to come up with evidence they comply. The lazy fuzzy logic they submitted proves the greater fools they are, leading society to re-up their faith in these firms.

Hugging the benchmark index, as described above, has been supplemented by hugging ESG. Whatever society, egged on by the ignorance of the United Nations, believes ESG means.

Back To Earth

ESG violates nature’s first-principles. Nature’s asymmetry of entropy dictates that energy availability is irreversibly declining, forcing us to deploy renewable, not sustainable investment strategies—different strategies derived from different first-principles. For sustainability does not exist anywhere in the universe.

The difference between renewal and sustainability is as significant as understanding the difference between cause and consequence. Renewal is the cause of temporal proxies of sustainability as its consequence.

In the words of Nietzsche, the confounding of consequence with cause yields the depravity of reason you witness in the interview, where both asset owners hopelessly attempt to infer the promise of repeatable investment returns from ESG.

Re-educate Asset Owners

The challenge for asset owners to authentically become responsible investors means we must educate them on nature’s first-principles.

Nature’s steadfast principles have already determined the outlook for humanity and our planet for some 4.5 billion years, and our universe, consisting of 400 billion galaxies, each with 100 billion stars like our sun, for 13.71 billion years. Proven and repeatable are the words that must sound like music to the ears of investment professionals.

We must move the investment thesis from manmade conjecture and make-believe to a higher normalization of truth derived from nature’s first-principles.

Only when the arbitrage of human expansion, driven by finance, is guided by nature’s first-principles can we expect the returns from nature’s alpha to improve the excellence and longevity of the human species consistently.

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The sign of a vibrant, innovative nation is its willingness to pursue the ever-unfolding discovery of nature's truth and reinvent itself continually against those proven new normalizations upstream. Let’s inspire the world with new rigors of excellence we first and successfully apply to ourselves.

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