- Christian Armbruester
ESG and LFC
Why it is all about the football in the end.
Clearly, we need to do everything possible to prevent the destruction of our environment. By investing in companies or technologies that can help us sustain our way of life, we can incentivise good behaviour. This seems to have struck a nerve with many people and there is now an estimated $53 trillion invested in stocks that rate highly amongst the three central factors of Environmental, Social and Governance (ESG) measuring the sustainability and societal impact of an investment in a company or business.
That’s great, but isn’t that about half of the entire market capitalisation of all global stock markets? Not much discerning good from bad at all it seems, and maybe that’s the problem when trying to do too much. There are so many definitions of how to measure the good a company does versus some other things which are all subject to countless interpretations and even more grey areas. Think of a company that is polluting, yet ranks highly by some scoring measure so long as they treat their employees fairly and have good corporate governance, or maybe even contribute to social housing.
Does one good cancel one bad, and are some so bad, that they are immediately excluded, but what if some are so good that the end justifies the means? Could it be that electric cars may help us reduce our carbon footprint, but will the manufacturing and disposal of billions of batteries not do as much damage to the environment as a company making airplanes? And shouldn’t we just all stop eating red meat, so we don’t have so many cows extruding methane, and isn’t that an even bigger problem than the endless plastic pollution?
It can get very complicated, which is why it is up to the individual investor to make up their own mind to determine what matters to them. Then it gets interesting. If we only invest in companies that pass our muster, then we may narrow the exposure to the broader markets too much. Lest we forget, no matter what we may think at this time, things could also change dramatically in the future and the markets are still random. That could prove very costly in opportunity costs and additional fees, as ESG does not come for free.
The good news is that companies now have to pay attention to how they score in trying to do good in the world. That in of itself may very well save the planet. In the meantime, we should best focus on the things immediately in front of us, and the trick is to establish better habits. So, stay away from one way plastics, only travel by plane when you absolutely have to, and for goodness sake, never doubt that Liverpool would finish no lower than third ever again.