{"id":346835,"date":"2024-10-15T08:08:39","date_gmt":"2024-10-15T06:08:39","guid":{"rendered":"https:\/\/climatescience.press\/?p=346835"},"modified":"2024-10-15T08:08:42","modified_gmt":"2024-10-15T06:08:42","slug":"buy-woke-go-broke-the-failure-of-esg-investing","status":"publish","type":"post","link":"https:\/\/climatescience.press\/?p=346835","title":{"rendered":"Buy Woke, Go Broke: The Failure of ESG Investing"},"content":{"rendered":"\n
\"\"<\/figure>\n\n\n\n

<\/p>\n\n\n\n

From The Daily Sceptic<\/a><\/p>\n\n\n\n

By\u00a0Tilak Doshi<\/a><\/p>\n\n\n\n

Terrence Keeley is a long-time ESG practitioner who until recently headed the official institutions group in the world\u2019s largest asset manager BlackRock advising sovereign wealth funds, central banks, finance ministries, and public pension funds. He claimed<\/a> in 2022 that \u201cESG investing could well be the biggest thing in finance since the Dutch East India company issued shares in 1602\u2026ESG\u2019s success or failure could literally impact every living creature on Earth.\u201d<\/p>\n\n\n\n

Mr. Keeley\u2019s boss, Larry Fink, chief executive of BlackRock, was equally hyperbolic in his annual letter to CEOs in early 2020:<\/p>\n\n\n\n

\n

We believe that sustainability should be our new standard for investing\u2026all investors \u2013 and particularly the millions of our clients who are saving for long-term goals like retirement \u2013 must seriously consider sustainability in their investments\u2026I believe we are on the edge of a fundamental reshaping of finance.<\/p>\n<\/blockquote>\n\n\n\n

Alas, the ESG and sustainability movement, a financial juggernaut in its heyday, has performed poorly in the past two years.<\/p>\n\n\n\n

This poor performance has been a result of a combination of factors including the boomeranging impact<\/a> of Western sanctions on Russia energy exports, the collapse<\/a> of \u201cclean\u201d energy stocks, the rise in interest rates, and the widespread backlash against \u2018woke capitalism<\/a>\u2019 and climate change regulations in Europe<\/a> and the U.S<\/a>.<\/p>\n\n\n\n

ESG investment momentum has slowed on both sides of the Atlantic since 2022. In 2022, for the first time in more than a decade, investors pulled more money<\/a> from funds marketed as \u201csustainable\u201d than they added. In the first half of 2024, the U.S. ESG market<\/a> experienced net outflows of over $13 billion, on the heels of a $9 billion outflow in 2023. Morningstar, a financial research firm, found<\/a> nearly 2,500 fewer sustainable funds globally in 2023 relative to the prior year and 2024 is on track for an even steeper plunge.<\/p>\n\n\n\n

According to Torsten Lichtenau<\/a>, Bain and Company\u2019s global carbon transition practice lead, \u201cWhen you look at the importance of [environmental, social and corporate-governance efforts], you can clearly see a huge peak in 2021 to 2022 where there was also a lot of action off the back of the Glasgow COP26 climate conference in 2021. Now it\u2019s dropped back to 2019 levels.\u201d<\/p>\n\n\n\n

Competitive Sustainability<\/strong><\/p>\n\n\n\n

Enter \u201ccompetitive sustainability\u201d, a buzz phrase of choice of its most vociferous proponents. The European Commission\u2019s 2022 Annual Sustainable Growth Survey<\/a> (ASGS) presented a \u201ccompetitive sustainability\u201d agenda for the EU covering four dimensions: productivity, environment, fairness, and stability. In a word salad worthy of Brussel\u2019s unelected bureaucrats, it describes the agenda as one where \u201ca fair, just, green and digital transition which requires sustainable social conditions, will serve as a foundation for future prosperity and resilience. Well-designed labour market policies and social protection systems are the basis for resilience and inclusive growth.\u201d<\/p>\n\n\n\n

In offering a Panglossian world where all good things go together \u2013 high productivity, environmental sustainability, fairness and stability \u2013 \u201ccompetitive sustainability\u201d is now the battle cry for the Cambridge Institute of Sustainable Leadership (CISL). It is mom\u2019s venerable apple pie, something no reasonable person could object to. There are no difficult trade-offs to be made since \u201ccompetitive sustainability\u201d ensures both<\/em> economic growth and environmental sustainability, not to mention equity and stability.<\/p>\n\n\n\n

In an article<\/a> published in the Financial Times<\/em> last month, the interim CEO of CISL Lindsay Hooper begins by saying: \u201cThe business case for sustainability is clear: companies cannot thrive on a planet suffering from cascading crises and unmanageable risks. Yet, despite decades of corporate commitments, businesses continue to damage the planet, carbon emissions to rise and fossil fuel companies to chase growth.\u201d<\/p>\n\n\n\n

Ms. Hooper asserts that \u201cIt is time to confront the uncomfortable truth: ESG as it stands \u2013 grounded in disclosures and voluntary market action \u2013 will not deliver the necessary change. The solution is a radical shift towards \u2018competitive sustainability\u2019.\u201d<\/p>\n\n\n\n

What does this \u201cradical shift\u201d entail? To deliver change, Ms. Hooper says we must \u201credesign\u201d penalties and incentives which \u201cwill require a critical mass of businesses to push for government action\u201d. Evidently, market decision-making in the context of disclosure rules and voluntary action by company executives is not enough. She finds it imperative that governments \u201ccreate conditions that make it economically compelling to phase out damaging activities. Otherwise businesses that voluntarily transition will be undermined by those that don\u2019t.\u201d<\/p>\n\n\n\n

There we have it, straight from the hallowed halls of academe. Governments \u2013 presumably advised by sustainability-congruent academics \u2013 must replace markets by diktats that determine which industries are pursuing \u201cdamaging activities\u201d and need to be proscribed, and which are not. An extreme case of governments picking winners.<\/p>\n\n\n\n

The familiar trope of market myopia<\/a> is trotted out by Ms. Hooper: \u201cAs long as the market rewards short-term gains over long-term resilience, businesses will harm the planet, and markets will destroy the foundations on which they depend.\u201d Evidently, Mr. Hooper seems not to be too concerned about the \u201cshort-termism\u201d of governments bound by electoral cycles.<\/p>\n\n\n\n

Meanwhile, in the Real World\u2026<\/strong><\/p>\n\n\n\n

Firms favoured by ESG investment metrics \u2013 the \u201cnon-damaging activities\u201d as per Ms. Hooper \u2013 such as wind and solar system providers, electric vehicle manufacturers, \u201cgreen\u201d hydrogen producers, and other such \u201csustainable\u201d entities have been having a hard time after initial enthusiasm and high IPO values.<\/p>\n\n\n\n

The Renewable Energy Industrial Index<\/a> (RENIXX) is a global stock capitalisation index of the 30 largest renewable energy industrial companies in the world including First Solar, Gamesa, Orsted, Plug Power, Solarcity, Tesla, and Vestas. Established on May 1, 2006, with an initial value of 1,000 points, the index stood at 1,013 points on September 25th, essentially registering zero value growth over the last 18 years. In comparison, the S&P 500 Index more than quadrupled over the same period. The RENIXX is down three years in a row from 2021, losing half its value. It should be noted that that this performance would have been far worse if the outperforming Tesla stock was removed from the index.<\/p>\n\n\n\n

The\u00a0iShares Global Clean Energy<\/a>\u00a0ETF aims to \u201ctarget access to clean energy stocks around the world\u201d. Last year its value fell by 26.1% and from its inception in 2008 it has lost about 60% of an initial investment of $10,000.<\/p>\n\n\n\n

\"\"<\/figure>\n\n\n\n

Perhaps the best example of ESG-inspired debacles is provided by bp, the hitherto \u201cwoke\u201d oil company that has used lower-case letters for its name and logo since 2000. In the high road of the climate crusade, marked by corporate brochures extolling social responsibility and environmental sustainability, the company was first among its peers<\/a>. Its then-CEO John Browne \u2013 now Lord Browne \u2013 declared in a 2020 speech at Stanford University: \u201cWe need to reinvent the energy business. We need to go beyond petroleum.\u201d<\/p>\n\n\n\n

According to an article<\/a> in the Telegraph<\/em> published on Monday, bp has abandoned its target to cut oil and gas production by 2030 \u201cas its new chief executive scales back a switch to green energy to boost its share price\u201d. Its new CEO Murray Auchincloss plans to focus on investments in oil and gas projects in the Middle East and the Gulf of Mexico to boost output. Quite unsurprisingly, in the real world where money matters, the company\u2019s shares rose as much as 1.3% after the story was first reported by Reuters. Perhaps rather late in the day, the company\u2019s senior management has decided that its fiduciary duties to maximize shareholder profits trump its devotion to \u201csustainability\u201d.<\/p>\n\n\n\n

Them Weasel Words<\/strong><\/p>\n\n\n\n

The question about the ethically appropriate role of business firms in societies in which they operate is as old as the business firm itself. Adam Smith, a keen observer of businesses \u2013 he authored An Inquiry into the Nature and Causes of the Wealth of Nations<\/em> after all \u2013 was not at all uncertain in his response to this question in 1776: it is from the appeal to the self-interest of the butcher, the brewer and the baker that we expect our dinner, not to their benevolence. He had also \u201cnever known much good done by those who affected to trade for the public good\u201d.<\/p>\n\n\n\n

Almost two centuries later, Smith\u2019s most famous acolyte Milton Friedman was just as clear<\/a>: \u201cThere is one and only one social responsibility of business \u2013 to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.\u201d<\/p>\n\n\n\n

He too was distrustful<\/a> of businessmen who talk of promoting desirable social ends, for they are \u201cunwitting puppets of the intellectual forces that have been undermining the basis of a free society these past decades\u201d.<\/p>\n\n\n\n

In the battle of the greatest weasel words of recent years, \u201cESG\u201d and \u201ccompetitive sustainability\u201d, along with their corollaries such as \u201cenergy transition\u201d and \u201cnet zero by 2050\u201d, surely come out at the top.<\/p>\n\n\n\n

It is not capitalist free markets but those that seek to replace them that threaten to destroy the foundations of modern civilization.<\/p>\n\n\n\n

Dr. Tilak K. Doshi is an economist, a former contributor to <\/em>Forbes, and a member of the CO2<\/sub> Coalition.<\/em>
\u00a0<\/p>\n\n\n\n

<\/p>\n","protected":false},"excerpt":{"rendered":"

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