Companies with good ESG scores pollute as much as low-rated rivals

https://www.ft.com/content/b9582d62-cc6f-4b76-b0f9-5b37cf15dce4

by jredwards • 3 years ago

359 167 3 years ago

Dig1t5• 3 years ago

A component of ESG scores is how much you discriminate against white people. So of course you can have a good ESG score yet be a polluter.

monero-xmr• 3 years ago

You need to discriminate against Asians too! Or at least the algorithm I’ve seen used by universities and DEI HR groups ends up discriminating against them most.

zarathustreal3• 3 years ago

The notion of a social score is absurd. You'd first have to define *society*. At least here in the USA, there is no monolithic society. Cultures differ greatly depending on which state you're in and sometimes even within a state.

kshahkshah• 3 years ago

That's really it, we've no great unifying force as a country except occasional wars which force us to innovate. Otherwise we're usually just riding the wave of those times and really prolonging it at the great expense of everyone except those who know the game, want to play the game, and have enough money to participate in the game.

brbrodude• 3 years ago

Its in the words themselves, society is not culture, society means bonding of people/association to a thing, generally implied "civil society". This has nothing to do with some guy being a punk rocker skateboarder anarchist and the other a Mormon and the other a rural farm guy, that they cannot be a part of the same society. That's just not it.

kornhole• 3 years ago

This explains why some of the most polluting and damaging companies can be the most woke in their training and marketing. This has led to a major backlash with some companies now advertising themselves as anti-ESG. Splitting out the scores that are determined by independent agencies (not fund managers) could maybe improve the situation, but the botched history will impede any efforts to reform.

JamesBarney2• 3 years ago

A couple of hiring managers from oil and gas companies have told me there is a strong push to try not to hire white ICs if you can help it. This makes more sense in the context of trying to get a good ESG score to improve their P/E ratio.

Ekaros3• 3 years ago

Wouldn't good ESG score mean worse P/E ratio? As that would mean driving up the Price while Earnings might not be affected?

rayiner• 3 years ago

Lawyers are going to have a field day over the next few years litigating over these discriminatory practices in view of SFFA and it’s logical corollaries: https://s.wsj.net/public/resources/documents/AGLetterFortune...

What’s remarkable is that apparently none of these hiring managers and executives saw this coming. The stuff they’ve put into writing is wild. Some of the stuff, like aspirational racial quotas, wasn’t even legal under pre-SFFA law. I don’t know who was advising these people.

eli3• 3 years ago

What specifically are you talking about?

Dig1t5• 3 years ago

Here’s Apple’s ESG report: https://s2.q4cdn.com/470004039/files/doc_downloads/2022/08/2...

In it they say: “We’re making progress in increasing representation, and currently 50 percent of our workforce in the U.S. is made up of people from underrepresented communities.”

“Please see the Appendix on page 81 for more data on representation”

Then scroll to page 81.

We see that 43% of the company is white (the US is 60% white as of the last census, so white people are in fact underrepresented at Apple)

27.9% of the company is Asian

9.4% black

14.8% Hispanic

So they have stated that they are working on “increasing representation” (hiring) all categories of people except white.

They report these numbers because they are used to calculate the company’s ESG score. More diversity = higher score, where diversity is defined as fewer white people.

A higher ESG score means that ESG funds are more likely to invest in this company, pushing up the company’s value.

This is a literal economic incentive to discriminate against white people.

specialist• 3 years ago

Interesting. How's that measured, quantified?

dang3• 3 years ago

"Eschew flamebait. Avoid generic tangents." - https://news.ycombinator.com/newsguidelines.html

Could you please stop posting unsubstantive comments and flamebait? You've unfortunately been doing it repeatedly. It's not what this site is for, and destroys what it is for.

If you wouldn't mind reviewing the site guidelines and taking their intended spirit more to heart, we'd be grateful.

Dig1t5• 3 years ago

I am sorry, I was not trying to post flamebait. I have provided more context with sources and an explanation of what I was talking about in questioning responses further down in the thread. I would include them in the parent comment if I was still able to edit it.

I really don’t feel like it was a harmful comment, it has net upvotes, the majority here seem to agree with the sentiment.

archo• 3 years ago

https://archive.is/UF7dt

justrealist• 3 years ago

ESG is fairly obviously used to whitewash companies whose main product goes against ESG principles. It's a bunch of irrelevant window-dressing compared to the core concern of what a company is selling yet somehow that never makes it into the ESG metric.

Ex, Tesla has a terrible ESG scores, and Philip Morris has great ones. Is that because PM's diverse board actually outweighs giving people cancer? No, it's just that ESG was designed explicitly to allow companies to hand-wave away the core issue that they are selling bad things.

Zigurd• 3 years ago

It could be "a bunch of,,, window-dressing compared to the core concern of what a company is selling yet somehow that never makes it into the ESG metric."

That, however, is the easy part. It's obvious BP is Big Oil. Or that cigarette companies sell poison. Or that gun makers' lobbyists have made the US a needlessly dangerous place. A gun made out of recycled materials is still, obviously, a gun. An ESG score just tells you whether they aren't racist sexist scum, too.

epicureanideal• 3 years ago

An ESG score just tells you whether they aren't racist sexist scum, too.

Or that the direction of their sexism and racism goes in the scorer’s approved direction.

zarathustreal3• 3 years ago

If you think ESG scoring indicates anything about the culture of a company I've got a bridge to sell you

throwawa14223• 3 years ago

As far as I can tell ESG is a huge 'begging the question' problem. Companies with good ESG scores do better because we invest in companies with good ESG scores.

lantry• 3 years ago

But shouldn't the "free market" correct for this? If most people are putting their money into ESG but there isn't a real underlying performance difference, that creates an arbitrage opportunity for people willing to invest in non-ESG?

Sadly, I can already hear the right-wing rebuttal: "the market isn't truly free because of the (bankers) running blackrock! we need govt intervention to ban ESG, then the market will be truly free!"

local_issues2• 3 years ago

The market isn't free because Vanguard and BlackRock are a duopoly on this. Vanguard isn't the issue though - they do literally nothing besides harvest tiny tiny fees at scale.

BlackRock is a different story - look into their actions around SFH. They're not great.

Aerroon4• 3 years ago

But shouldn't the "free market" correct for this?

It probably will. It will just take many years for this bubble to pop.

Ekaros3• 3 years ago

I think we can conclude that market isn't efficient. There is enough of big enough players that don't even try to invest in optimal manner. Think of pension funds and Sovereign wealth funds. If those are moved to invest ESG related it will naturally drive ESG up.

And really I think whole market is not in sensible shape in general and has not been for a while. Not that crash is imminent or can't be kicked down the road a few more times.

gotoeleven• 3 years ago

They may pollute just as much but they definitely make more rainbow-spackled products during Pride Month which helps me feel good about the places I like to put my genitals.

hartator• 3 years ago

Wasn’t ESG score for BP surprisingly high?

neonate• 3 years ago

https://news.ycombinator.com/item?id=36975423

yadaeno• 3 years ago

PepsiCo, a company that each year fills 50 billion disposable plastic bottles with sugar water is considered "low risk".

https://www.sustainalytics.com/esg-rating/pepsico-inc/100791...

gunapologist99• 3 years ago

At least plastic is inert.. even then, it's still better than making batteries.

tfandango2• 3 years ago

ESG is tricky to talk about thanks to the politization of it. I work on some projects that involve ESG data and I have some thoughts. First there's LOTS of factors. If you bunch them all up into one number, it becomes meaningless as the article describes. I would think wiser minds would use this data to make investment decisions based on some specific risk, like hedging against some environmental disaster which may affect some companies more than others. Also, one thing I notice is that umbrella companies make ESG data complicated. Sometimes there will be data from a subsidiary but not the parent, how that all bubbles up is of note. Companies may use this to manipulate their scores. And quality of the data is important, it is based on research not any sort of testing or analytic model, so one must trust the researchers in this case (or not).

warning26• 3 years ago

As you note, the politicization of it makes it difficult to point out the flaws without people assuming you like hate the environment or something. The problem is, like any score, it's easily gamed. That's how we get companies like ExxonMobil having great ESG scores.

The Atlantic had a great article about it:

"When you invest in an ESG fund, you may think you’re buying into a highly curated selection of positive-outlier companies. In reality, it will often look similar to an ordinary market-wide index fund. The 10 biggest holdings in the S&P 500 ESG index include Big Tech companies such as Apple, Microsoft, and Alphabet; big banks such as JPMorgan Chase; and, incredibly, ExxonMobil."

https://www.theatlantic.com/ideas/archive/2023/05/esg-woke-i...

lowkeyoptimist2• 3 years ago

Partially the politicization of it, but also because it is lumping together three issues that the society cannot even broadly agree one of the issues within 'ESG'. I don't think it is difficult to see why "ESG" is political by its nature.

tfandango2• 3 years ago

Thanks this is a nice way of saying what the other poster said :)

I agree, ESG is just a bunch of numbers but if we can't agree on what the right output is then it's political in nature. I wonder if society has a bigger issue with disagreements about the E and S rather than the G, maybe not?

lesuorac• 3 years ago

Making an assumption that the factors into an ESG score are significant in how they affect a company; isn't investing into a company with a bad ESG sub-component(s) a good idea?

You've identified what is going wrong with the company so as a large fund you can buy a lot of shares and push for shareholder votes to fix those aspects of the company and reap profits when the company improves?

Galanwe• 3 years ago

isn't investing into a company with a bad ESG sub-component(s) a good idea?

Yes, that is the paradox of the ESG finance trend.

Using a quantitative approach, you can use the CAPM to show that at equal risk/return, increasing the cost of capital of some companies (by limiting their access to funding because of low ESG score) actually make these companies a comparatively more profitable investment (for those that disregard ESG).

If you like these kind of paradoxes based on investor ethics, have fun discovering the world of Islamic finance and how to get interests when you cannot get interests.

toast0• 3 years ago

Well, if what's bad is governance, you may not be able to influence the results of shareholder votes because of the governance issues.

cryptonector• 3 years ago

ESG is tricky to talk about thanks to the politization of it.

"ESG is tricky to talk about because it is inherently political."

There, I fixed it for you.

manzanarama• 3 years ago

Isn't any decision that affects more than a few people political?

yesbut• 3 years ago

ESG is a way for large firms to manipulate the stock prices of smaller firms and buy them out. That is all there is to it. Nobody should be fooled by this. None of these companies care about ESG or any of the propgandized ethics of ESG. Every one of these pro-ESG companies would lay off a large swath of their workforce if it meant higher profits. Pretty painful for the "S" social part of ESG.

imperfectcats• 3 years ago

Goodhart's Law: https://en.wikipedia.org/wiki/Goodhart%27s_law

"When a measure becomes a target, it ceases to be a good measure"

Any ESG system that uses a calculated number composed of many areas will quickly fall prey to Goodhart's Law. With an E, an S and a G to work on, the areas for change are numerous enough that Goodhart's Law holds even in a non-cynical world.

When an edict that "We need to increase our X score this quarter" is handed down, the real, living people who have to improve the ESG rating are likely limited in what they can do. A combination of pre-existing contracts and commitments, difficulty in changing large systems and problems with multi-department co-ordination means that most changes will be small and isolated, i.e. things where one department or small team can implement the entire change.

bakuninsbart• 3 years ago

I'm working adjacent to the sustainability space, and I think Goodhart's law applies to a good degree, however a bad measure is often still more useful than no measure at all. It at least enables us to show flaws, develop better indicators and metrics.

When it comes to human rights in the supply chain and environmental impact, there was a complete lack of data in many cases. With the ESG, we see a major shift where companies are now scrambling to gather said data, analyse it and often also publish it.

binary132• 3 years ago

Obviously KPIs should be (and probably are) chosen specifically with this effect in mind.

raxxorraxor• 3 years ago

are likely limited in what they can do.

If they aren't suffering under these rules, which will almost be a certainty.

ZeroGravitas• 3 years ago

When they say pollute in the headline, they mean only C02, which makes the headline misleading clickbait even for people who don't understand what the S and G in ESG stand for.

It can very well be that a high-emitting firm is very good at governance or employee satisfaction. There is no strong relationship between employee satisfaction or any of these things and carbon intensity,” Goltz argued.
“Even the environmental pillar is pretty unrelated to carbon emissions,” he added, with this rating partly determined by factors such as a company’s use of water resources and waste management practices.

It's amazing how something so utterly unremarkable has already inspired 4 unhinged comments.

TylerE• 3 years ago

I hate hate hate how pollution has been reduced to co2 and nothing else. Don't have to worry about global warming if contaminated water and soil kill us all first.

marcosdumay• 3 years ago

It's more that the other kinds of pollution are local and most of the world will be quick to fine you or throw you in jail if you start to pollute too much of them.

jmholla• 3 years ago

for people who don't understand what the S and G in ESG stand for.

They stand for Social and (corporate) Governance. I just looked it up myself. I wish these articles would explain that. Even the link on the word ESG is unhelpful.

CameronNemo4• 3 years ago

I think caring about ESG, and especially evaluating a company's governance, is important.

But I don't know how much I really want BlackRock and Vanguard to be the ones doing the scoring...

zmgsabst• 3 years ago

I agree:

- caring about your investments aligning with your values is good

- investment firms violating civil rights laws and promoting fashionable bigotry using retirement funds to coerce companies into self-destructive behavior is bad

jquery2• 3 years ago

Why are you prefixing bigotry with "fashionable"? Seems like a shibboleth. The only "fashionable" bigotry I can think of right now is anti-trans bigotry, but I don't see how that links to the rest of your statement.

legitster4• 3 years ago

I find it hilarious the kind of conspiracy theories people lob at BlackRock and Vanguard.

BlackRock maybe I can maybe understand, but Vanguard is like the most straightforward boring investment company in the world. It's literally a shareholder co-op for passive investment funds. People have no idea what they are talking about.

local_issues2• 3 years ago

My favorite Vanguard fact is their HQ. It's a shitty set of lowrise buildings in suburban Philly - not some massive highrise in Manhattan or JC. Their whole thing is automation and saving money.

https://www.google.com/maps/place/Vanguard/@40.0513614,-75.5...

BlackRock? Different story, but Vanguard? Comeon.

CameronNemo4• 3 years ago

How is ESG passive investment?

Cornbilly2• 3 years ago

Tech workers (with their inflated view of their own intelligence) are almost always hilarious. It's half the reason I keep coming back to HN.

If they spent the same amount of time doing research as they do on concocting inane conspiracies and brainless explanations, they may actually be as smart as they think themselves to be.

Xeamek• 3 years ago

Black Rock does NOT own the world, here is why:

https://youtu.be/NzKOVVvDGhE?si=Xhog1L_VRtzMsaQ6

Exoristos2• 3 years ago

If you have to have YouTube explainers "proving" you're not evil, you're probably evil.

fallingknife2• 3 years ago

Correct. But they do get to vote the shares.

Eumenes• 3 years ago

You don't need ESG to practice good corporate responsibility and governance. Carbon credits are a scam. Great interview on this topic by an esteemed NYU professor: https://www.youtube.com/watch?v=vt0C05i7pBs

legitster4• 3 years ago

Matt Levine: It's Easy to Make Oil Companies ESG: https://www.bloomberg.com/opinion/articles/2023-07-12/it-s-e...

lofatdairy• 3 years ago

Was gonna post this. That said, this is not what Levine is writing about. Levine is writing about how you can restructure your portfolio to gain exposure to fossil fuels _without_ lowering your ESG metrics by simply investing in companies with fossil fuel holdings (since then your ESG is calculated by the carbon emissions of the holding firms and not the assets themselves). Here, the authors are essentially concluding that ESG ratings are actually poorly correlated w/ the actual emissions of the firms being rated. This is probably because the environmental metrics of ESG scores are forward-looking (thus you can offset current pollution by aggressive reduction projections), but I'm not in this field so I don't know anything more.

MostlyStable• 3 years ago

Also, there's evidence that moving investment from polluting to non-polluting industries at best has almost no impact, and potentially makes things worse:

https://www.icpmnetwork.com/wp-content/uploads/2023/07/Count...

FormerBandmate• 3 years ago

Europe defunded their oil and gas industry and only great things happened from it. Just ask Ukraine

The only way to stop pollution is to consume green. That’s it. The Saudis and the Russians don’t care about ESG

therealdrag0• 3 years ago

This topic was discussed on freakanomics for those wanting an easy form.

mcpackieh2• 3 years ago

Not really news is it?

From two years ago: https://www.bloomberg.com/professional/blog/bp-esg-outlook-s...

BP’s ESG performance and outlook are bolstered by an ambitious net-zero emissions target from its operated upstream production by 2050, complemented by a tenfold surge in green spending, 50 gigawatts of renewable-power generation by 2030 and a 40% decline in oil and gas volume. Ecological metrics are favorable, with significant improvement in the 10 years since the Deepwater Horizon disaster, as BP’s safety and spill records are in-line with or above peer averages. BP’s board is among the most gender-diverse, and it has an investor-friendly governance structure and best-in-class ESG disclosures.

So BP, noted exploder of oil rigs in the ocean, gets a boost to their ESG rating by, among other things, promising to do some shit 30 years from now (a promise doubtlessly worth less than the paper it was written on), and hiring more women. What do either of those have to do with BP's actual emissions impact?

ESG exists to rehabilitate the reputations of companies like this.

ClumsyPilot3• 3 years ago

investor-friendly governance structure

This point is actually reasonable - a poorly governed company is a risk. Like if a single, unreadonable owner is prone to throwing hissy fits, ridking money in poorly thoigh out schemes and firing people because he woke up on the wrong side of the bed. Then thats a riskier investment.

mcpackieh2• 3 years ago

You're missing the forest for the trees.

psychphysic• 3 years ago

ESG is a waste of time, I can't wait until this fad dies down.

Aerroon4• 3 years ago

When I first read about it I thought someone was playing an elaborate joke. It makes no sense why such ephemeral concepts should somehow lead to better investments. If anything, the entire ESG score thing seems like a scam to get people to make bad investments and to then bet against those investments.

ke88y4• 3 years ago

It makes no sense why such ephemeral concepts should somehow lead to better investments.

Each component alone makes sense, if interpreted in a way that is consistent with shareholder capitalism.

1. Environmental. Interpreted in terms of shareholder capitalism, Environmental might mean something like "how well does this company work as a hedge against increasingly likely tail risks, and how resilient will it be to policy changes should those increasingly common tail risks result in secular or policy shifts".

E.g., a re-insurance company that is well-positioned WRT coastal flooding risk but which runs all of its offices on artisanal coal-fired powerplants -- that are a cheap and easy to replace with solar if and when needed -- should have a higher "Environmental" score than a "net zero" re-insurance company that is highly exposed to coastal flooding risk.

2. Social. Interpreted in terms of shareholder capitalism, Social should mean that middle management is not eg over-paying for labor from the Good Old Boys network instead of taking advantage of the cheapest available labor that meets quality requirements.

3. Governance. Interpreted in terms of shareholder capitalism, Governance might mean that you don't give a single founder or board member the ability to over-ride the preferences of the majority holders of equity. Also things like decisions being transparent to shareholders and so on.

The joke isn't ESG per se. The joke is that ESG as implemented makes the completely idiotic assumption that shareholder capitalism can do anything at all to solve political fissures or account for externalized costs.

chollida12• 3 years ago

It makes no sense why such ephemeral concepts should somehow lead to better investments.

What specifically do you find ephemeral about ESG?

supertrope• 3 years ago

The ideal is that companies that cause environmental damage, treat their employees and communities badly, and cheat their shareholders can be boycotted by those who don't want to fund this. Another motivation is those who think bad ESG scores are correlated with worse performance over long period of time. e.g. You think there will eventually be a carbon tax and this will hit coal companies really hard so you don't want to be the bag holder in 2050.

In practice it's just another financial product that first and foremost makes money for the sellers through higher fees. Some ESG funds cheat their customers by failing to perform the specific ESG vetting they promised in writing to do!

tenpies• 3 years ago

I quite enjoyed it as long as you understood what it really meant: Energy Stops Growing.

grej• 3 years ago

I'm reminded of Goodhart's law https://en.wikipedia.org/wiki/Goodhart%27s_law

"When a measure becomes a target, it ceases to be a good measure."

XorNot• 3 years ago

I feel like the corrollary to that would also be that measures invariably become targets over a long enough timespan.

nerdo• 3 years ago

Indulgences didn't signal much beyond what people paid the DNC^H^H^Hchurch platform either.

distant_hat• 3 years ago

Often companies with good ESG scores optimize for having good scores. Its like studying to the test and they may have particularly poor results outside of the test that they have studied for. Also, ESG is political and like all things that involve politics, many things that may be good for the score may be bad for the environment. Easiest example to see is in energy with things like nuclear power, and 'biomass' and coal.

water9• 3 years ago

Nuclear power if done safely is a much better alternative than say windmills which require extensive mining to make and kill thousands of birds a year.

maigret• 3 years ago

You’ll hate cats then https://www.statista.com/chart/15195/wind-turbines-are-not-k...

brickteacup• 3 years ago

something something when a metric becomes a target it ceases to be a good metric

robocat• 3 years ago

A good description would be “over-fitting”.

nomel• 3 years ago

I'm not sure that fits, since it might imply it's not intentional.

I think these companies are simply, explicitly, optimizing directly for ESG, for maximum gain, without regards to the "spirit" of ESG. They're rational actors. Why wouldn't they? Just like with taxes, it would be silly to not use the loopholes.

barfingclouds• 3 years ago

Nuclear energy is clean energy

im3w1l• 3 years ago

If you squint a bit, you can see some parallels to the AI alignment issue. Like it's clearly important to align AI, but what exactly should we align it to? How do we come up with one score that measures goodness? And it turns out that if you get the score just a tiny bit wrong, it can lead to big issues and people hating it so much they wish there wasn't any score at all.

throwaway106382• 3 years ago

ESG isn't about actual results, it's about controlling the culture.

dundarious• 3 years ago

It's a cynical cash grab, meant to make companies look good, and give Joe Public the impression that "positive change is happening", when 1. It is not, 2. Some change is happening, but what little there is, is mostly negative (implicit bias training rackets, etc.)

But it is primarily a racket. You don't need an ideology or a program for societal control to have a good racket -- in fact, it's best not to have one, so you can cynically jump onto the latest thing for this business cycle.

So I disagree with you completely, despite being strongly critical of the ESG phenomenon. This is a pretty popular position BTW. Many ESG critics (probably such as yourself) are in a bubble, as they think people such as myself are supportive of ESGs just because they are left-wing, when to most left-wingers, it's yet another example in a long history of greenwashing.

Only people in on the racket are for it: McKinsey types, CEOs, fund managers that are worried about activist investors such as Norway's Sovereign Wealth Fund, etc.

filecounter2• 3 years ago

Hard to 'believe' in ESG/DEI when the rich continue to fly private jets and a black scientist has never won a nobel prize.

HDThoreaun• 3 years ago

a black scientist has never won a nobel prize.

This is the entire point of DEI. As Kendi says, the only way to undo past racism and become an equal society is a period of short term discrimination against the privileged. Not saying I agree, but a Nobel is basically a career achievement and dei has been around for what, a decade? Would be surprising if it already lead to a Nobel.

filecounter2• 3 years ago

'Diversity' started as an anti-semitic agenda in the 1920's in order to limit the number of Jewish students at Harvard. https://www.timesofisrael.com/harvards-jewish-quotas-cited-i... .

rhaway84773• 3 years ago

The whole ESG discussion is fraught with misinformation.

Different ESG scores mean different things depending on what scoring you’re looking at. So, for example, an environmentally focused organization may rate a company high in ESG because they have low emissions and/or push for green legislation.

However, the more well known ESG scores that we see in the news are often from the financial press and are intended for investors, and often reflect the ESG risk exposure for the companies in question.

This tends to have the ironic effect of making environmentally friendly companies have low ESG scores, and less environmentally friendly companies high scores.

So, for example, Elon Musk complained about getting a low ESG risk score from S&P, but that made complete sense because Tesla was heavily exposed to governmental green policies. Remove CA’s CARB credits, or various green credits and tax benefits, etc and Tesla’s business would suffer.

Exxon, OTOH, was unlikely to see any such impact leading to a lower ESG risk score.

The key thing to understand is that there is no single ESG score. Every company creates different scores based on different factors and intended for different purposes, and their customers decide which ones are effective for their intended purposes and those scores tend to last and do well.

The political backlash against ESG scores is so misplaced.

It’s the equivalent of a personal wealth guru who believes that credit cards are not good for most poor people because they perpetuate their poverty deciding that therefore credit ratings for companies are bad, because both have something to do with the borrowing and lending of money.

JumpinJack_Cash2• 3 years ago

> The political backlash against ESG scores is so misplaced.

Rating agencies should rate the financial risk of stuff (mostly bonds they should try and do it well given that whole mess they created in 08)

They should not be involved in politics. When a rating agency goes beyond number crunching and they start looking at other stuff they are already out of their role. When they start looking at the number of women on the board that is preposterous.

Same is true for Fitch, Moodys, Bloomberg etc.

Everybody wants to be a politician and a virtue signaler these days...too bad that in a country full of politicians and virtue signalers nobody does any actual work.

ClumsyPilot3• 3 years ago

They should not be involved in politics.

"Should we bail out the banks" was politics. BP has a massive oil spill, how much will they be fined, are they going to be fined more because they are a British and not American company? How much will fcrashes of Boeing Max cost Boeing? Imagine these crashing planes were from a Chinese company, what would the consequences for the company be ?

The big economic projections are inseperable from politics. Only a naive person will believe otherwise

silisili• 3 years ago

ESG is nothing more than making companies kowtow to Blackrock.

Kiss that ring, companies, and maybe they'll throw a few crumbs at you.

gitfan862• 3 years ago

ESG is such a obvious scam. It would be like this:

Wife: Have you been cheating on me?

Husband: Lets check my APS score.

Wife: What?

Husband: Adultery, Pushups and Soccer Watching score. Looks like I'm in the 1% of husbands as calculated by the experts. So I don't think you have anything to worry about.

Ygg2• 3 years ago

Just offset CO2 emissions by hiring more diverse staff from New York.

Brilliant!

How come Fossil fuel industry never thought of that?

foderking• 3 years ago

lmfao

RcouF1uZ4gsC• 3 years ago

Actually, they did

https://www.investors.com/news/esg-companies-list-top-100-es...

ConocoPhillips and Exxon Mobil are one the list along with a trucking company at number 2 and various other oil companies.

smfjaw• 3 years ago

offset your cheating (emmissions) by buying adultery (carbon) credits

btilly• 3 years ago

I think that those credits are called "flowers".

I'm only halfway joking. A lot of people do try to address their guilt over bad behavior by doing nice things. And a lot of people who receive those nice things don't want to think about why they are being treated well. The easiest person to scam is the one who wants to believe the scam. And any kind of credit program will attract people who want to believe.

seltzered_• 3 years ago

There's been essays written around that framing, such as this one ('ESG Data is Like Less Wife Beating ', 2019): https://www.blorrainesmith.com/single-post/esg-data-is-like-...

The same author has moved towards proposing 'matereality' assessments in a different way: https://www.blorrainesmith.com/single-post/when-materiality-...

There's also groups advocating for alternatives to ESG, such as https://www.r3-0.org/

throwawaylinux• 3 years ago

It's a thinly veiled signal that a corporation will not act out against the status quo, and in return they will have protection from their corporate media and regulatory attack dogs.

The sad thing is they have scientifically captured and subverted mainstream activism, which for a while around 50-60 years ago emerged as what appeared to be their biggest threat. You can "resist" the state of things all you like, but you're not allowed to say anything about corporations that traffic arms to 3rd world countries because they tweet out BLM logos and rainbow flags now and again. And you have to resist by supporting mainstream political parties and politicians who have been around for decades and are definitely not complicit or responsible for what you are resisting.

gitfan862• 3 years ago

Right, but it seems to work for them.

Plenty of people believe that it is better to buy a gas powered Subaru instead of a Tesla because Elon doesn't support cluster bombing European farmland.

gnicholas• 3 years ago

A very interesting podcast on the topic, arguing that it doesn't make sense to divest from industries that pollute in favor of those that don't pollute — even if your goal is to reduce pollution: https://freakonomics.com/podcast/are-e-s-g-investors-actuall...

DevKoala• 3 years ago

The funny thing is that the Environmental metric is the only objective one while the Social and Governance ones can be bullshitted and manipulated. Those three things should have never been coupled. It’s all a scam.

gnramires• 3 years ago

I dunno, I think it could be combined in smarter ways, e.g. min(E,S,G) (or some kind of soft-min)[1]. Or give different weights for more uncertain measures. I think there's a very large amount of knowledge (in various fields) around evaluating those things, and we could have much more if we put some effort; also, we don't necessarily need to make everything 100% based on a small set of metrics. You could have some kind of adaptive evaluation that tries to find the most impactful events for that organization (e.g. trying to track down pollutants and quantify their impact, trying to track down social impacts and quantify them, etc.). In medical and charity fields for example there is QALYs (which do have serious problems still!), but are at least a reference point for impact -- to given an example; in comparing development we have HDI; etc..

Overall, I think trying to improve those things in a systematic way is the only real way to improve them. I want to know how well each company is doing in various areas. We are currently mostly blind to that.

And we should be mindful not to let the ones trying to game and undermine the systems win, and sincerely look at impact in all areas.

[1] Ideally, I think a metric would be able to measure something like a 'meaning of life difference' from different choices (and assign a corresponding metric for say an organization based on certain counterfactuals). Of course that's too difficult in general, but we can strive for example to keep the planet healthy and establish some standard "unit" for a healthy society (could be translated to money, but there could be some issues with that), establishing a trade-off say between say saving someone's life now (through a health intervention), and saving lives in the future by improving planetary conditions (with less pollution). Those things are perhaps surprisingly comparable (and surprisingly linear/additive as well).

There are mentions of Goodhart's Law and it certainly applies somewhat (if we tried simple, naive metrics): but Goodhart's Law doesn't apply when there are real, smart people doing the evaluation, in a dynamic way, using quantitative tools sensibly. And finally there are choices perhaps no such evaluation could capture, questions about what future do we want for ourselves in a broader cultural and artistic sense (which is why in the end freedom to support what you want as an individual is important).

I really think this is going to play a significant part in how we address many large scale issues!

archsurface• 3 years ago

I thought I wouldn't comment on this because saying it's a scam would just get me downvoted regardless of how I present it - colour me surprised, it seems to be comfortably the majority sentiment.

roody15• 3 years ago

Yes because these companies just do the math… hmm being truly environmentally friendly is tough for maximizing profits… hmm okay let’s just do a bunch of corporate safe political progressive posturing and marketing on everything else to off-set the E score.

So a non-union mega corp that exploits labor in third world countries gets a decent overall ESG score by making a big show of support of gay/trans or “diversity” goals.

It’s math .. and the bottom line and honestly nonsense.

westurner• 3 years ago

From https://www.ft.com/content/b9582d62-cc6f-4b76-b0f9-5b37cf15d... :

Keeran Beeharee, vice-president for ESG outreach and research at Moody’s, agreed that ESG investment does not necessarily help an investor create a low-carbon portfolio, or any other specific goal.
“[There is a] perception that ESG assessments do something that they do not. ESG assessments are an aggregate product, their nature is that they are looking at a range of material factors, so drawing a correlation to one factor is always going to be difficult,” Beeharee said.
“In 2015-16, post the SDGs [UN sustainable development goals] and COP21 [Paris Agreement], when people began to really focus on the issue of climate, they quickly realised that an ESG assessment is not going to be much use there and that they need the right tool for the right task. There are now more targeted tools available that look at just carbon intensity, for example,” he added.

Emission intensity includes CO2 (Carbon Intensity) and also Methane and other emissions.

Emission intensity: https://en.wikipedia.org/wiki/Emission_intensity

UN SDG Indicators 2023 revision (Goals, Targets, Indicators) https://unstats.un.org/sdgs/indicators/Global%20Indicator%20... ctrl-f "carbon", "emission", "methane"

Goal 9. Build resilient infrastructure, promote inclusive and sustainable industrialization and foster innovation
9.4.1 CO2 emission per unit of value added
Goal 13. Take urgent action to combat climate change and its impacts
13.2.2 Total greenhouse gas emissions per year

SDG9 > "Target 9.4: Upgrade all industries and infrastructures for sustainability": https://en.wikipedia.org/wiki/Sustainable_Development_Goal_9...

SDG13 > "Target 13.2: Integrate climate change measures into policy and planning": https://en.wikipedia.org/wiki/Sustainable_Development_Goal_1...

How should ESG composite scores be updated to reflect Emission intensity (to include CO2, and CH4,) as a weighted factor?

nologic01• 3 years ago

ESG is a deeply problematic concept but a world without any "esg" concerns at all is a terminal world with an expiry date fairly close. So the positive attitude is to see the glass as 5% full rather than 95% empty and see what could be the next step.

Unbundling the acronyms is the obvious first concern. They smack of a kitchen sink approach to everything the corporate thinks is a reputation risk. As factors they have no internal coherence.

Then, for each of the underlying issues one must clarify and distinguish whether it is an assessment of current state of the world or future risks (and to whom, what? earnings, value, reputation, clients, mother earth etc).

Finally, even in the most tractable case (accounting for current co2 emissions, which is a tiny fraction of environmental footprint and says nothing about the future) there is a mountain of methodological challenges to climb: Who is emitting, who is enabling it, who is demanding it, who benefits most etc. The modern economy is a giant hairball of dependencies yet we like to ignore all that.

The "ESG period" of the sustainability transition is the financial system taking a first peek at the actual state of the world as opposed to "the number goes up". Its no surprise that many just want to close the lid and pretend they never saw anything. But its not possible unless we accept we are an amoral last generation that devolves into a madhouse.

It took credit ratings a century to mature and they are still heavily gamed / leading to systemic crises. What makes you think this existential question for the unhinged corporate profit-focused entities that dominate modern economic life will get resolved any sooner?

There is a long, long road ahead. But if you look for purpose look no further.

otabdeveloper4• 3 years ago

Indulgences don't make you sin less? Who would have thought!

jnsaff25• 3 years ago

ESG is about how sustainable the COMPANY (stock price) is when looking from those three aspects i.e is it a safe investment to not lose your pension in it.

The survivability of everything around it is not to say irrelevant but at least a few steps removed.

So it tries to assess whether your money is still there, not the planet.

Obviously the marketing tries to make you believe that it’s about the planet.

jnsaff25• 3 years ago

So it looks at how well the company is prepared to do when the climate changes (mostly by having written some plans).

It does not care much about what the company actions do to the world.

jnsaff25• 3 years ago

In short: ESG measures the worlds impact on the company NOT the company's impact on the world.

Better ESG score means company is more resilient to change in those factors.

gmerc• 3 years ago

Shocking, the metric becomes the goal. It’s like working at Meta.

iamflimflam12• 3 years ago

Lots of the comments I’m reading really indicate how well the political campaign against ESG has worked.

Lots of knee jerk comments without much actual analysis and thinking.

Most of the commentators aren’t even aware what E, S and G stand for (environmental, social governance).

undefinedland2• 3 years ago

Equally, one might say that you don't know how the world works and how these scores will be governed by the few to get power over the many.

iamflimflam12• 3 years ago

No one is forcing you to make decisions based on ESG. There are fund that invest based on ESG. Equally there are funds that don't.

You can also buy whatever stocks and shares you want. ESG does not prevent companies from listing.

If you don't want to invest based on ESG then don't.

fallingknife2• 3 years ago

This is also a knee jerk comment that contains no actual analysis and thinking

klipklop• 3 years ago

I’ll likely get downvoted, but ESG is a way for finance/banking to punish companies that don’t align with their politics.

My favorite part about the whole thing is how it went from “conspiracy theory that will never actually be implemented” to I have to do ESG training at work within a few years.

LatteLazy• 3 years ago

People keep making tiny or zero progress. Then holding parties and acting like the problem is solved. Then getting shocked when it isn't.

ESG is nice, but it doesn't cure everything, at best it helps empower some people trying to do good. You should not expect it to "work" on a large, statistically significant scale. It was never going to.

The Paris accord is another example: it was an agreement to all just do our own thing and only what we want. So obviously nothing has been achieved.

People really struggle with the idea that something small is not everything...

lloydatkinson• 3 years ago

I was briefly involved in some ESG stuff. I echo similar sentiment here; mostly a scam or at best nonsensical and just another box checking exercise.

Blackstrat• 3 years ago

ESG makes Larry Fink and the rest of the globalist cabal happy. It's much like a magician's sleight of hand, pay attention to our score and ignore what we're really doing.

FooBarBizBazz• 3 years ago

I was trying to think of an alternative, which the bankers could do, if they wanted, which would be narrowly focused on climate change. Like ESG, the idea is that it's something big financial actors can do without getting government on board.

First thought:

Just bid up the price of oil. Make it too expensive for the refiners. Drive gasoline up to $50/gallon. Every drop on the market, just buy up and do not burn.

There is an issue with this, of course, which is that it still (hugely) incentivises extraction. You don't want to have to physically store the stuff.

But you also can't pay for notional oil left underground: "Yeah, trust us, we didn't sell that barrel to somebody else for additional money."

Second thought:

You could subsidize the hell out of a substitute though, thereby killing demand. Investors poured money into Uber at a loss just so it could eat up market share, right? Why can't you do that with solar panels and electrification? (Where's my electric car paid for by the Saudi Sovereign Wealth Fu... oh.) You can even create network/lockin effects: Electric cars cost half the price, so everybody buys one, so gas stations go out of business.

These are very expensive strategies, but they seem to directly use the price mechanism to try to achieve your goals. Is something cheaper and more efficient possible? Something about efficient markets would seem to imply that that isn't possible, to the extent that efficient markets exist...

Idea 3:

Continuing brainstorming --

- Naked-short futures for beachfront lots in Florida and Bangladesh?

- Buy (underpriced) insurance (basically PUTs) on same?

I feel a creative finance person could come up with lots of things.

Companies with good ESG scores pollute as much as low-rated rivals

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