To ESG or not to ESG

Is the love affair with ESG ending? 

The media in the past few weeks has been filled with less than positive news when it comes to ESG. From comments made by Blackrock’s Larry Fink to the SEC investigating Goldman’s to the police raiding the offices of a well know Germany asset manager to the backlash from Tesla’s exclusion from the S&P 500 ESG Index….ESG has seen much better days. 

The general sentiment has gone from promising, both in terms of construct and returns, to being mentioned in the same sentence as fraud, scam, investigation, lawsuits, reckoning. With the Financial Times questioning as to whether we should be writing the epitaph for ESG in a piece called “RIP ESG?”.

Most of these negative stories and the regular use of the dreaded term “Greenwashing” would make most ESG sceptics jump up and say, “I told you so!”. Yes, we are in the cowboy days of ESG (can we say that…is that a thing?), where anything goes and there is much hype / PR around the subject. Just look at the hyper growth in the use of the term “ESG” in CVs and job descriptions. 

However, we would propose a cautionary look at the underlying theme underpinning all these articles. 

ESG as it exists today, is flawed as a concept (how do you measure “Doing Good?”). For it to persist, it does need better regulations, more consistency, more accountability and more debate. We would argue that all the stories above are actually hinting at a momentum change in that direction (maybe you have to really stare at the articles to see it…like an autostereogram).

Progress is never a straight line and ESG will need to go through any more hurdles and growing pains before it can become a widely accepted concept. Regardless of what side of the ESG fence you sit on, I don’t think anyone would argue that ESG (and the humans associated with it) will need to adapt if it is to move from this ethereal concept, that is open to interpretation and manipulation, to something that is more grounded in measurement, analysis and figures.