From the Daily Skeptic
by Tilak Doshi
Terrence Keeley is a long-time ESG practitioner who until recently led the official institutional group at BlackRock, the world's largest asset manager, advising sovereign wealth funds, central banks, treasuries and public pension funds. He claimed in 2022 that “ESG investing could well become the biggest thing in finance since the Dutch East India Company issued shares in 1602… The success or failure of ESG could impact literally every living thing on the planet.”
Mr. Keeley’s boss, BlackRock Chief Executive Larry Fink, was equally hyperbolic in his annual letter to CEOs in early 2020:
We believe that sustainability should become the new standard in our investing… All investors, especially the millions of clients saving for long-term goals such as retirement, must seriously consider the sustainability of their investments… I believe we are at a point in financial fundamental reshaping.
Sadly, the ESG and sustainability movement, a financial behemoth in its heyday, has underperformed over the past two years.
This poor performance is the result of a combination of factors, including the reverberating impact of Western sanctions on Russian energy exports, the collapse of “clean” energy stocks, rising interest rates and a general backlash against “woke capitalism” and the climate. European and American regulations
Since 2022, momentum in ESG investing has slowed on both sides of the Atlantic. Following an outflow of $9 billion in 2023, the U.S. ESG market saw net outflows of more than $13 billion in the first half of 2024. Financial research firm Morningstar found that the number of global perpetual funds decreased by nearly 2,500 in 2023 compared with the previous year, and a larger plunge is expected in 2024.
“When you understand [environmental, social and corporate-governance efforts]you can clearly see a huge spike in 2021 to 2022, and a lot of action was taken after the COP26 climate conference in Glasgow in 2021.
sustainable competition
“Competitive sustainability” is the buzzword chosen by its strongest proponents. The European Commission's 2022 Annual Sustainable Growth Survey (ASGS) proposed a “competitive sustainable development” agenda for the EU, covering four dimensions: productivity, environment, fairness and stability. In the words of a salad from Brussels’ unelected bureaucrats, it describes the agenda as “a fair, just, green and digital transformation that requires sustainable social conditions and will be the basis for future prosperity and resilience.” Well-designed Good labor market policies and social protection systems are the foundation for resilience and inclusive growth.
In order to provide an optimistic world where all good things come together – high productivity, environmental sustainability, fairness and stability – “competitive sustainability” is now the battle cry of the Cambridge Institute for Sustainability Leadership (CISL). This is Mom’s carefully crafted apple pie, and no reasonable person would object to it. There are no difficult trade-offs because “competitive sustainability” ensures Both economic growth and environmental sustainability, not to mention equity and stability.
Posted in financial times CISL interim chief executive Lindsay Hooper first said last month: “The business case for sustainability is clear: companies cannot thrive on a planet plagued by serial crises and uncontrollable risks. However, despite the numbers businesses have made, A decade of commitment, yet corporations continue to destroy the planet, carbon emissions continue to rise, and fossil fuel companies continue to pursue growth.
Ms Hooper asserted, “It is time to face an uncomfortable truth: the ESG status quo – based on disclosure and voluntary market action – will not bring about the necessary change. The solution is to move towards 'sustainable competition'” 'Fundamental transformation.
What does this “radical transformation” mean? Ms Hooper said to achieve change we had to “redesign” penalties and incentives, which “requires a large number of businesses to push governments to take action”. Clearly, it is not enough to make market decisions in the context of disclosure rules and voluntary actions by company executives. She found that governments must “create conditions that economically force people to phase out destructive activities. Otherwise, businesses that voluntarily transform will be harmed by those that do not.
And just like that, we get it straight from the hallowed halls of scholarship. Governments—presumably on the advice of sustainability scholars—must replace markets with mandates, determining which industries are engaging in “destructive activities” and need to be banned, and which industries are not. An extreme example of government picking winners.
Ms. Hooper offered a familiar trope of market myopia: “As long as markets reward short-term gains over long-term resilience, businesses will harm the planet and markets will destroy the very foundations on which they live.” Apparently, Mr. Hooper didn't seem too worried. The “short-termism” of governments bound by electoral cycles.
Meanwhile, in the real world…
Companies favored by ESG investment metrics (what Ms. Hooper calls “non-disruptive activities”), such as wind and solar system suppliers, electric vehicle manufacturers, “green” hydrogen producers and other such “sustainable” entities , has been facing difficulties.
The Renewable Energy Industry Index (RENIXX) is a global stock market capitalization index of the world's 30 largest renewable energy industry companies, including First Solar, Gamesa, Orsted, Plug Power, Solarcity, Tesla and Vestas. The index was established on May 1, 2006, with an initial value of 1,000 points and 1,013 points on September 25. It has basically had zero growth in the past 18 years. By comparison, the S&P 500 has more than quadrupled over the same period. RENIXX has fallen for three consecutive years since 2021, losing half its value. It's worth noting that this performance would be even worse if outperforming Tesla stock were removed from the index.
The iShares Global Clean Energy ETF aims to “target global clean energy stocks.” Its value has fallen by 26.1% in the last year, and it has lost about 60% of its initial investment of $10,000 since its inception in 2008.
Perhaps the best example of an ESG-induced disaster is BP, the hitherto “woke” oil company that has used lowercase letters for its name and logo since 2000. Be among the best among peers. Its then-chief executive John Brown (now Lord Browne) declared in a 2020 speech at Stanford University: “We need to reinvent the energy business. We need to look beyond oil.
According to an article telegraph BP dropped its target to cut oil and gas production by 2030 “as its new chief executive scales back a shift to green energy to boost shares,” a report on Monday said. Its new chief executive, Murray Auchincloss, plans to focus on investing in oil and gas projects in the Middle East and the Gulf of Mexico to increase production. Not surprisingly, in the real world where money matters, the company's shares rose 1.3% after Reuters first reported the story. Perhaps belatedly, the company's senior management has decided that its fiduciary duty to maximize shareholder profits trumps its dedication to “sustainability.”
If they are weasels
Questions about the morally appropriate role of business corporations in the societies in which they operate are as old as business corporations themselves. Adam Smith was a keen observer of business – he wrote ” An exploration into the nature and causes of national wealth After all, he was not at all vague in his answer to the question in 1776: We expect our dinners to be driven by an appeal to the self-interest of butchers, brewers, and bakers, rather than from their benevolence. He also “never knew how much good was done by those who traded for the common good”.
Some two centuries later, Smith's most famous acolyte, Milton Friedman, also made it clear: “Business has only one social responsibility—to use its resources and engage in activities designed to increase profits, so long as it obeys the rules of business.” Also That is, the game features open, free competition without cheating or fraud.
He also distrusts businessmen who talk about promoting ideal social goals because they are “unwitting stooges of the intellectuals who have been destroying the foundations of a free society for decades.”
In one of the most cunning word wars of recent years, “ESG” and “competitive sustainability”, and their corollaries such as “energy transition” and “net zero emissions by 2050”, are certainly at the top of the list.
It is not the capitalist free market that threatens to destroy the foundations of modern civilization, but the markets that seek to replace it.
Dr. Tilak K. Doshi is an economist and former Forbesand CO members2 alliance.
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