ESG investing not working the way the Left wants it to

June 28, 2022

By Tim Worstall

It would appear that some of the mystique of ESG is being seen through — oddly enough, it’s those determinedly on the progressive Left spotting it.

The idea is that investors use ESG, or Environmental, Social, and Governance, to evaluate potential investments. In short, invest in companies that are saving the climate, treating the workforce right, paying their taxes as they should, and not bribing the local government. All the wishlist of that progressive Left, in fact, that business, capitalism, should be tamed to produce those desired outcomes.

It doesn’t quite work like that often enough:

“Private Prisons Are a Socially Responsible Investment, According to Bizarre Wall Street Measures,” according to a piece from The Intercept.

As The Intercept reports, a private prison company called CoreCivic qualifies as an ESG investment because they’ve just conducted a racial equity survey. This is very nice, of course, but it’s not quite what investors might think they’re gaining from investing in an ESG fund.

The Intercept, thinks this is all the fault of Wall Street. Offering what is not quite so in order to gain money. But the underlying problem is that there is no simple definition of what is ESG. There’s just that general ragbag of nicely progressive things and qualify with one or two and that’s it – qualify.

As an example, Tesla – yes the maker of electric cars – doesn’t qualify for the S&P ESG index because it doesn’t have a low carbon strategy. There are other little stories, Goldman Sachs seems to have just renamed some of its funds, and Deutsche Bank is likely to be prosecuted over ESG definitions.

The problem isn’t in fact Wall Street, it’s the lack of any decent definition of what ESG actually is. Therefore, play is being made with what is included in the definitions – including, as here, a private prison company qualifying because it’s done a racial equity survey.

The Intercept is funded as an entirely independent media outlet from part of the Omidyar e-Bay fortune. Which is fine, they also list just outside the top 500 news outlets for the US and gain 4 million visits a month. The problem with the independence is that there’s none of that feedback of control. No one does insist that they follow the implications of their findings.

ESG investing is, to some extent, a bit of a game. Not because capitalism is wrong here – the system produces what people say they want just fine – but because the definition of ESG is just that too wide and flimsy list of progressive desires. Given that there is no strong or strict definition of what actually is ESG there is, well, there’s no strong nor strict definition of what is ESG. A prison company qualifies and Tesla doesn’t.

How strange that progressive desires don’t lead to a working system, eh?


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