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    A Healthy Dose of ESG Scepticism

    Two years and three shots later, I’ve finally succumbed to that sneaky little devil of a coronavirus. It struck just as I thought the pandemic was over and I should redirect my worries towards other threats that I can do equally little about.

    Perhaps under the dark influence of the disease, I find myself delving into reads that I’ve been consciously avoiding for a while and get seduced by the arguments of a plethora of eloquent ESG sceptics. I dive into Professor Aswath Damodaran’s blog, dissecting ESG to expose it as a flawed concept, and pour over years of accumulated clever FT articles by Robert Armstrong on the same topic. A little soul-searching should be healthy, right?

    Between bouts of fever and involuntary naps, I even manage to peruse the entire length of Tariq Fancy’s essay that everyone has been talking about ever since first published in August last year. I’m late to that party, too, yes. But at least I can say I read it, which, judging by the comments of some of Fancy’s critics, I highly doubt they did.

    I find The Secret Diary of a ‘Sustainable Investor’ rather entertaining, actually, despite the frequent namedropping and that annoying habit of repeating the same argument over and over again. Whether born a sceptic or trained to be one during his early career as a distressed investor (a.k.a. ‘vulture investor’ or ‘gravedancer’), Fancy has certainly mastered the art while working as CIO of sustainable investing at BlackRock and after. He is hardly a cynic, though, and his pathos feels genuine and refreshing. I can easily see why his call to stop answering “inconvenient truths with convenient fantasies” is so catchy.

    It took Fancy just a couple of years at BlackRock, moving among the sustainable investing elite, to convince him that ESG is “now more a marketing narrative than any reflection of reality.” He is not necessarily accusing corporates of lying about their commitment to sustainability. His observations simply lead him to the logical conclusion that “since it [the commitment] had to be neutral to positive for shareholder interests, it had to serve some function of the business and the long-term profit machine. And that purpose was, most likely, marketing.”

    We are all part of this game of pretending, according to Fancy. “It turns out that not even the envied Swedes, who sometimes seem like they’ve got it all figured out, can escape the ill-effects of an economic system that currently rewards appearing sustainable more than it does actually being sustainable,” he writes, striking closer to home.

    Quickly and cleverly, Fancy dismisses the notion that either private companies[1], the public[2] or investors[3] can be expected to resolve the climate crisis or that such a solution would be desirable. The answer, according to him, is a top-down, government-led action. “It’s time we all finally accept that only a supreme, overarching authority with democratic legitimacy can and should be leading the way in coordinating our efforts to solve these problems.”

    That should be good news, I guess, for the lawmakers of the European Commission, say, or the U.S. Securities and Exchange Commission, already busy honing their various mandatory disclosure requirements and detailed taxonomy criteria. And if you can’t hear them cheering and clapping just yet, it might be, perhaps, because they find the burden of carrying out the mission, as per Fancy’s prescription, a little too onerous.

    Slowly, as my body is recovering from the illness, I feel grateful for the newly gained antibodies that should keep me COVID-safe for a while, at least. Hopefully, my recent trip to the land of ESG scepticism, too, will protect me from the worst outbreaks of greenwashing. For a while, at least.

    Photo by Kristine Wook on Unsplash

     

    [1] “Are important social imperatives best left to companies to manage if they only care about purpose when it happens to overlap with profits?”

    [2] “The idea of a fickle public attention to preserve society’s long-term interests is a prospect that should alarm us.”

    [3] “Do you really want your banker redesigning society?”

    Julia Axelsson, CAIA
    Julia Axelsson, CAIA
    Julia has accumulated experience in asset management for more than 20 years in Stockholm and Beijing, in portfolio management, asset allocation, fund selection and risk management. In December 2020, she completed a program in Sustainability Studies at the University of Linköping. Julia speaks Mandarin, Bulgarian, Hindi, Russian, Swedish, Urdu and English. She holds a Master in Indology from Sofia University and has completed studies in Economics at both Stockholm University and Stockholm School of Economics.

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