ESG, growth, and Europe’s stupidity

When economist Jim O’Neill coined the term BRICS, I don’t think that he imagined that two of the countries using his catchy acronym (Russia and South Africa) would become failed states. The continued use of the acronym is rather ridiculous, but shortening it to BIC would probably result in a copyright case from a certain pen company.

Equally, when the powers-that-be lumped together Environment, Social, and Governance into ESG, I don’t think they thought the Environment would take on such importance. 

To use ESG as a form of non-financial measurement or yardstick to assess or beat up (please choose your preferred prejudice as applicable) the performance of companies does not serve investors well

In my opinion, continuing to use ESG as a form of non-financial measurement or yardstick to assess or beat up (please choose your preferred prejudice as applicable) the performance of companies does not serve investors well.

Today, every self-respecting company is expected to have an ESG policy. Many investors with their own ESG interpretations won’t even consider investing unless there is an ESG policy behind their investment targets. Like many things in life, it doesn’t seem too onerous at first sight but then, when you look a bit deeper, issues start to appear.

We may all agree on high principles. Keeping the environment safe is a very good thing. Having a sense of social justice and awareness is a good thing. Putting in place sensible and fair rules about governance seems to make sense, but putting all three together in the same basket less so. 

Most people know little and sadly care less about social governance. They may have vague ideas about gender equality in the boardroom; transparent, fair and meritocratic governance. Heated conversations may arise, but more likely there will be rolled eyes and ennui when discussed. 

The environment is at a different level and should stand as its own metric. Combining it with two rather tame performance targets compared to its importance can lead to a divisive mess.

As a Baby Boomer, I accept personal responsibility for my contribution to man-made damage to the environment. I accept that I have a moral duty to try to clean things up not only for my immediate family but also for all the families of the world. 

Recycling our plastic and organic waste just doesn’t cut it. Even owning land where we abhor all use of chemicals and toxins and have planted thousands of trees, bushes, plants, vegetables, olive and fruit trees while allowing much of the land to grow wild, is just a drop in a microplastic-laden ocean in the battle.

The challenge is that, unlike the Social and Governance side of ESG, the Environmental side has moved from a place of reason and best practice to an elevated belief system—a secular form of modern religion.

Few people now talk dispassionately about the environment. This is hugely problematic. It is like having a balanced discussion about Brexit.  

I like to think I am rational and pragmatic, even if I am a lifelong Tottenham Hotspur fan. I try to exhaust all rational and scientific explanations before considering conspiracy theories and religious interpretations. I fully accept that the science on global warming and its adverse effects on the environment, with its almost unstoppable feedback loops, means it is too late to fix or reverse certain things, such as the melting glaciers. I do not accept the blind faith belief that technology will solve it all. It has its place and will make a huge difference,e but it’s only part of the solution. Changing lifestyles is the major factor.

In my opinion, one of the reasons the Democrats lost the election to a multiple-indicted felon – twice impeached and five times bankrupt – was because of the level of woke and environmental woke emanating from the left wing of the Democrats. 

This turned off many and angered others, even those inclined to favour the Democrats normally. Few of us enjoy the demagogy of absolute certainty delivered to us as a polemic of truth from on high.

Also, if we turn off all use of carbon tomorrow, we risk starving the poor and causing immense destruction to the world’s economy. It can’t be done and isn’t being done. Even if the West did so, China, Russia, and India will not.  

Making gestures about cut-off dates may be sincere, but they are not sensible or deliverable. The UK has one of the most expensive energy costs in the world, partly due to its carbon policy.

Just as the internal combustion engine is being phased out, it is simultaneously being made more efficient and less polluting before disappearing and being replaced by non-CO2 electric vehicles. Therefore, it makes environmental and investment sense to simultaneously invest in non-polluting energy sources and more efficient and cleaner carbon sources.

We also have the issue of so-called “greenwashing.” Carbon offsets, in my humble opinion, are more of an unethical scam than a real reduction of carbon production. Paying to offset pollution in one location by not polluting in another is bad ethics and open to fraud. 

Northvolt, the battery maker for electric cars, has filed for Chapter 11 amid chaos, as many green believers backed it. Near my home in Umbria, RWE, a large German energy firm with a not-so-good ESG rating, is proposing to build a wind farm hosting 200-meter-tall wind turbine towers with tri-blade rotors with an arc of 170m. The structures are six times the height of the Colossus of Rhodes but are not Wonders of any World. 

Putting aside 2,200 tons of concrete, 90 tons of steel, and 830 tons of sand, which are required to install each turbine on precious agricultural land, the further problem is that the wind doesn’t blow much in our area. RWE is seemingly not releasing their collated wind data, ignoring local opposition, and ploughing ahead, irrespective of the damage these enormous installations will do to the local area.

Maybe EU subsidies and green politics are getting in the way of more sensible alternatives.

I am not a Nimby and I sincerely believe we all must do what we can to clean up the environment. At the same time people must be fed and our homes heated. 

I don’t need Greta Thunberg and her like shouting at me through a loudspeaker that they have seen the light, and I have not. Let’s be practical, not dogmatic.  

We have done damage, some of which is irreparable but, unlike Samson, the solution is not to bring the entire house down, but to stop the damage, repair what we can and improve and phase out what we cannot. We cannot just turn off the  switch. China won’t and India can’t.

In my opinion, it is important that we separate out the Environment from Social and Governance in assessing the performance of multinational organisations.  The approach to the environment is paramount, but policies must also be based on rational and objective metrics not knee-jerk reactions to polar bears standing on rapidly melting ice sheets.