ESG is bullshit

In Financial competency on 13/01/2021 at 5:15 am

One of the UK’s best stock pickers (His funds outperform), Terry Smith on Environmental, Social, and Corporate Governance (ESG).

ESG refers to the so-called three central factors in measuring the sustainability and societal impact of an investment in a company or business. ESG criteria are a set of detailed but flakey standards for a company’s or business’ operations that socially conscious investors use to screen potential investments.

ESG investing a marketing tool to extract fees from gullible investors.

Sorry back to Terry Smith:

Your sustainable fund seems to take quite a common-sense approach, but what are the advantages and risks of factoring ESG into stock selection? How useful are ESG ratings here?

There are several problems with factoring ESG into stock selection. One is that so many ESG approaches look at many of the most obvious factors, such as carbon footprint, hazardous waste, use of water, use of plastic, sources of energy, etc, but fail to take into account the fundamental and financial viability of the business. We think you should also look at things such as innovation, product development, revenue growth and return on capital. There is not much point in having a business that scores highly on conventional ESG factors, but that fails financially or in terms of its products or service.

Another problem I would suggest is a mindless box-ticking approach. The mantra of ‘comply or explain’ too often gets transmuted into ‘just comply’. Take Philip Morris (US:PM), for example. We think it is making a major contribution to the welfare of smokers with its Reduced Risk Product, but we daren’t include it in our sustainable fund as it will just be met by people hissing ‘It’s a tobacco company’. Yes it is, but maybe it’s also part of the solution to conventional smoking. It would be more productive to have a real debate

Lots of other gd stuff in the article.


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.

%d bloggers like this: