The article in the url below demonstrates the challenge for investing in inserting altruistic or ideological motivations in place of market mechanisms. The danger is that the returns are diminished and that only a certain percentage of the market is willing to compromise their return on investment. This has been playing out with ESG funds for some time now, but reality appears to be catching up. As investigations by regulators into, first, Deutsche Bank (in Germany) and, soon after, Goldman Sachs (in the U.S.) were announced over the summer, the reality of the ESG façade has become increasingly apparent. Ultimately, it cannot be solved until we first agree on what needs to be measured (the E, S, and G), and then develop effective metrics of those constructs (many of which do not currently exist). For now, it should be painfully apparent that the majority of the ESG (or SRI) investment craze is not moving us any closer to a more sustainable economy and, in fact, might be doing more harm than good if it lulls us into the belief that we are actually making progress. At present, of course, all progress on tackling climate change appears to be put on hold as we deal with the consequences of the conflict in Ukraine:
"So far in 2022, the S&P 500 is down more than 13 percent, and it briefly dipped more than 20 percent below its peak, putting stocks in bear market territory. Dismal as the stock market may be, the situation looks even worse if you are worried about the future of the planet. The fact is that only one broad stock sector has provided consistent returns over the last year: old-fashioned fossil fuel, and the companies that extract, refine, sell and service it."
More specifically:
"In fact, when I looked at a performance table of the top companies in the S&P 500 for 2022, I found that 19 of the top 20 spots belonged to companies connected, in one way or another, with fossil fuel. The best performer was Occidental Petroleum, with a gain of 142 percent."
And, what is worrying is that this trend looks set to continue:
"Russia's assault on Ukraine and the mounting Western sanctions are improving prospects for fossil fuel, Bank of America noted in a report to clients on Thursday. 'Our commodity strategists expect that a sharp contraction in Russian oil exports could trigger a full-blown 1980s-style oil crisis,' with energy prices rising much higher, the report said. 'Not owning energy is becoming more costly,' it said. 'With China reopening, peak driving season and favorable positioning/valuations, we see more upside' for energy prices."
The whole point about strategic CSR is that a firm's self-interest is determined by its stakeholders. Thus, creating value for those stakeholders is what makes the firm successful. The moral challenge of that reality (the framework is descriptive, not normative) is when the stakeholders (i.e., all of us) want something that is not necessarily 'good' for us.
Take care
David
David Chandler
© Sage Publications, 2020
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Fossil-Fuel Shares Lead the Stock Market. How Awkward
By Roxane Gay
June 5, 2022
The New York Times
Late Edition – Final
BU3
