With a nod to tomorrow's 50th anniversary of Earth Day, the newsletters this week focus on the field of ESG/SRI investing. Today, the article in the url below offers a broad critique by the WSJ columnist (James Mackintosh) who occasionally returns to this issue. Whenever he does, I find his perspective insightful because he tends to cut through a lot of the fluff that surrounds ESG/SRI (created largely by the investing companies trying to jump on the bandwagon). This column is no exception – I find the central conundrum that he presents fascinating:
"Much of ESG is about what economists call externalities: things such as carbon emissions that are free to the emitter but costly to wider society. Making money from pricing externalities is a matter of identifying which ones will lead to government, consumer or worker action and which ones won't."
The comment may seem cynical, but I think reflects how many investors (whether professional or layperson) think and act. If so, it captures an economic reality that is missing from most CSR commentary around ESG/SRI investing. It also takes into account the inconsistent approach from politicians (and all stakeholders, broadly speaking) to public policy:
"Treating your workers badly might help your profits, but it is likely to backfire in the long run as they leave for other employers. Using cheap ingredients that poison your customers, even if it seems to be legal, leads to lawsuits or government crackdowns."
The challenge, of course, is to identify when the backlash will come (and how strong it will be):
"It took decades for government to act on evidence that tobacco was killing people but just a few years to move against vaping. Alcohol, meanwhile, remains a great business despite the damage it does."
The result is that, although the amount of capital flowing into SRI/ESG funds is increasing rapidly (even more so in the current political environment), it is not clear it is achieving the goals that are intended for it. If so, then the investment companies are arguably deceiving many who are trying to channel their investments in ways that reflect their values. As Mackintosh notes at the beginning of this column:
"It is hard to move in the world of investment without being bombarded by sales pitches for running money based on 'ESG,' or environmental, social and governance criteria. The trouble is that few involved seem to agree on how it works (or, more to the point, doesn't)."
Take care
David
David Chandler
© Sage Publications, 2020
Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler5e
Strategic CSR Simulation: http://www.strategiccsrsim.com/
The library of CSR Newsletters are archived at: https://strategiccsr-sage.blogspot.com/
A Socially Responsible Strategy Can be Tricky
By James Mackintosh
November 13, 2019
The Wall Street Journal
Late Edition – Final
B1
