From ESG to Just Environmentalism
No one appreciates the politicization of what should be a unanimous goal for human civilization.
We know ESG stands for Environmental, Social, and Governance…
But what is the goal of ESG?
Which aspect of this acronym should be the focal point of our investments?
I don’t think most entities running with this terminology could give you a straightforward answer.
The subjectivity of the wording itself leads to potentially problematic situations for the corporations willing to play the game.
We’ve seen this firsthand with companies like Disney and Anheuser-Busch.
Focusing on positive environmental impact is a clear and tangible trend.
There are a variety of industries that allow you to directly benefit from the energy transition. This is what I fixate on with my investments.
But what about the S and G in this equation?
I don’t even think there are any credible ways of investing in these aspects within the public markets.
Social: Diversity and inclusion, community engagement, social justice… sorry, but no one even agrees on what these terms mean or how they should be implemented.
In addition, how does someone even invest in this? These are just traits found in varying degrees at existing corporations. There is no industry to buy into here.
Governance: Leadership integrity, shareholder accountability, conflict of interest avoidance.
All of these are aspects that should be a bare minimum in any investment you make. We don’t need to lump this in with anything else.
You’ll notice that all of the large ESG or sustainability funds just own the big tech companies. At that point we might as well just own the S&P 500… what’s the difference?
So when people are quick to point out that inflows into sustainability funds are slowing down, it makes sense.
ESG was destined to fail because of ambiguity and a tendency for politicization.
Mixing investing and personal opinions about how the world should be– is never a good idea.
We need to focus on reality.
The environmental trend is the only discernible aspect within ESG that has real sectors to invest in. Only the E will remain.
It will take time for this differentiation to materialize. The terminology may change, but the capital requirements of the energy transition are clear.
The IPCC tells us that “the net-zero transition will require $125 trillion by 2050 in climate investment.”
Even if we only reach a fraction of that level of funding… that is still tens of trillions of dollars.
I can’t think of any trend larger than the energy transition.
Many investors have been burned on capital-intensive, green investments like electric vehicles or hydrogen production.
Hence the lack of enthusiasm we are seeing now as the economy has worsened since 2021.
But most investors don’t know there are plenty of capital-light, quality businesses being developed that will enable a cleaner future.
These are the opportunities we can take advantage of now, while ESG is falling out of favor.