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  • Anant Gupta

Let's talk ESG

Social media loves dunking on it. Companies keep talking about it. But..

Here's one interesting quote from an article in Bloomberg:

“most of what we were doing wasn’t really creating any systemic change as much as lulling a fantasy that was delaying the action by government required to create that.”

And here's an interesting twitter discussion. I am not going to describe the criticisms as they're already pretty much covered in these two links. The basic criticism can be boiled down to that ESG is hypocritical as no company is perfect, we all have different morals and companies cannot be bashed for fulfilling what end customers demand. Doesn't matter if it is alcohol, smoking or social media. Or that we're all dependent on countries with questionable human right practices for manufacturing. It is a valid criticism.

Proponents of ESG also have good points. We can and should demand more ethical practices from companies. We've needed clean energy for a while.

Here's the point that I've mentioned many times before: Nothing can be done unless we make changes at micro level. At how we function. We can't keep demanding BP be transitioned out unless we reduce our dependency on oil. Which we can't because there is no alternative, What ends up happening is oil companies get less funding, green energy is not available and oil prices end up where they are now. The average person doesn't care about ESG. They don't know what ESG is. The average person is smoking or drinking or eating junk. ESG funds cannot expect companies to be cut off from cheap capital for fulfilling these needs. ESG begins at home by not dumping plastic in the ocean at first place. By making the public's homes ESG friendly first. This is not just a top-down move. It needs to be top-down and bottom-up. Otherwise, the whole ESG thing falls apart. We don't and shouldn't need someone else to make these choices. Not a revolution, not a breakthrough. Small steps. Small changes.

There are lots of positive sides to ESG: It is better than nothing. I would rather see BlackRock try ESG than not at all. Even if the way is flawed in my opinion, inaction would be worse. Climate change is a real threat. I'd rather we have these discussions than not. But ESG needs to be enforced by the general population, not asset managers. And it does not mean alienating what already is. It means funding transitions to green energy and better practices. And it should not be about RETURNS. That is why I did not mention ESG returns or have any interest in them. Saving the planet is a RETURN better than anything. It should not be about money. Prof Damodaran wrote about this much better than I ever could. I hope ESG moves on from being fancy marketing to doing some actually useful things. Hopefully, something good will come out of this.


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