Jun 18, 2023·edited Jun 18, 2023Liked by Devin LaSarre
Interesting read. Great job summarizing the issues of an extremely nebulous topic. Are there any positives to ESG? Or is it so confusing by design? (I.e. exploit good intentions to influence large investors). Thanks!
Inherently, the 'G', governance, is incredibly important. As Hunter's comment notes - perhaps placing greater spotlight on that is a net positive. But I am not sure that ESG needs to be separately defined. Corporate governance has always been and will always be critical. Those who speak of the need to focus on 'sustainability' fail to recognize that successful companies already put a great deal of effort focusing on stakeholders and processes to ensure exactly that. To put it simply, companies that don't focus on sustainability have a higher propensity to be unsustainable models, suffer, and don't stick around as long.
I heard the quote in the context of MMT but I think it applies better to ESG: [ESG} isn't something you do; it's something that is. ESG "opponents" don't actually want purely Friedmanite managers blindly pursuing highest profits. They typically care about issues like national security, family values or domestic protectionism.
These are no more or less ESG concerns than the typically left-coded definitions that get applied to the label. Every shareholder has an implicit ESG rubric, perhaps a better approach than opposing ESG standards is constructively advocating for corporate citizenship that aligns managers and shareholders. As tiresome as ESG discourse can become, it at least represents new interest and activism in corporate governance which I have to believe is a net positive.
Well said, Hunter. We all must define our own rubric. As you pointed to - the governance aspect of ESG is not trivial. But it is not new. Evaluating stakeholder alignment has been and will always be an essential component of the investment-making process. The danger lies in outsourcing that responsibility, as well as holding any expectation that making certain tradeoffs must implicitly lead to superior returns.
“However, unlike financial metrics, in which there are clearly accepted ways of measuring, many aspects of ESG remain brutally difficult to objectively define.”
Spot on! This reminds me of the discussion we had about Berkshire’s investments in tobacco-related stocks and bonds. Warren and Charlie were very upfront that they didn’t know exactly where to draw the line, and actually moved the line often between the early 1980s and 2000s.
ESGiggles.
Interesting read. Great job summarizing the issues of an extremely nebulous topic. Are there any positives to ESG? Or is it so confusing by design? (I.e. exploit good intentions to influence large investors). Thanks!
Inherently, the 'G', governance, is incredibly important. As Hunter's comment notes - perhaps placing greater spotlight on that is a net positive. But I am not sure that ESG needs to be separately defined. Corporate governance has always been and will always be critical. Those who speak of the need to focus on 'sustainability' fail to recognize that successful companies already put a great deal of effort focusing on stakeholders and processes to ensure exactly that. To put it simply, companies that don't focus on sustainability have a higher propensity to be unsustainable models, suffer, and don't stick around as long.
I heard the quote in the context of MMT but I think it applies better to ESG: [ESG} isn't something you do; it's something that is. ESG "opponents" don't actually want purely Friedmanite managers blindly pursuing highest profits. They typically care about issues like national security, family values or domestic protectionism.
These are no more or less ESG concerns than the typically left-coded definitions that get applied to the label. Every shareholder has an implicit ESG rubric, perhaps a better approach than opposing ESG standards is constructively advocating for corporate citizenship that aligns managers and shareholders. As tiresome as ESG discourse can become, it at least represents new interest and activism in corporate governance which I have to believe is a net positive.
Well said, Hunter. We all must define our own rubric. As you pointed to - the governance aspect of ESG is not trivial. But it is not new. Evaluating stakeholder alignment has been and will always be an essential component of the investment-making process. The danger lies in outsourcing that responsibility, as well as holding any expectation that making certain tradeoffs must implicitly lead to superior returns.
“However, unlike financial metrics, in which there are clearly accepted ways of measuring, many aspects of ESG remain brutally difficult to objectively define.”
Spot on! This reminds me of the discussion we had about Berkshire’s investments in tobacco-related stocks and bonds. Warren and Charlie were very upfront that they didn’t know exactly where to draw the line, and actually moved the line often between the early 1980s and 2000s.
Yes. And for the record -- I am all for changing views and moving lines. We all have to draw them, and sometimes they shift.