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  • Christian Armbruester

ESG, Revisited

Why it is best not to ask when you don’t want to hear the answer.

It was a seemingly innocent question, but the response clearly indicated otherwise. What followed was a ten-minute rant and the number of expletives used to describe how he really felt was something else entirely. What was even more surprising was that I normally never get more than a few words out of him. He was a gentle soul, quite reserved, and had an otherwise pleasant disposition.

So, I asked other clients, counterparties, service providers and anyone who would care to give me their thoughts on the matter. What I found was more of the same and it seems the term itself has become as divisive as that other notorious conversation stopper, which we commonly refer to as hedge funds. Yes, ESG is the new marmite and what we really would like to know is what’s so wrong with wanting to save the planet?

From an investment standpoint, ESG is a rather murky affair. Yes, there are now many trillions invested into companies that score highly on an environmental, social and corporate governance scale, but what that really means is anyone’s guess. Part of the problem is that you can destroy the planet on one hand, but so long as the company promotes the hiring of a heterogenous work force with an amply representative board of directors, all is forgiven. In other words, one investor’s favourite stock according to one set of criteria, may be another one’s kryptonite and it makes the whole thing rather random. Much like the rest of the investment universe.

What about the common good? By the time you have accounted for all the ingredients, components, infrastructure, workforce, manufacturing, transportation and distribution of any product, the true impact of a business is impossible to measure. Take electric cars. All fine and good that there won’t be any more combustion engines polluting the atmosphere, but the electricity has to come from somewhere. More copper needs to be mined, batteries need to be disposed, and the production process itself may make them just as bad as their gas guzzling ugly cousins, never mind the ESG score.

I suppose charity also starts at home and before we split hairs on the finer points of measuring the corporate impact on the world, what about our behaviour? Evidently, if all of us forewent some of the creature comforts we so enjoy, the planet could be saved in an instant. However, not everyone can give up red meat, put on Lycra to travel by bike, and use rainwater to flush the toilets. As such, it is a bit like trying to quit smoking and keeping it off until tomorrow but complaining about the prices going up. Maybe that’s why no one wants to hear about ESG.


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