ESG principle flawed

There has been lots of talk recently (and YouTube videos) about ESG investment principles.

The talk says that Environment/Social/Governance (ESG) is very shallow and essentially a marketing tactic to simply bring money in to large funds to continue churning money and making more money for Wall Street.

But is Wall Street the right participant in a societal fix for poverty and climate change?

I would say no. The two ideals are misaligned in principle.

If a money manager does not find the return he or she is looking for, the ESG principles are over-ridden in favour of the investment that props up the fund financially and this is one of the reasons that many ESG funds actually invest in the hydrocarbon industry.

The movement for sustainable investing in the SDG’s laid out by the UN (which itself is not making appropriate headway to solving problems) must be grassroots. People can vote with their money.

There is nothing wrong with investing in funds that make you a return. But if you decide you want to invest in ESG principles, then the currency is different and that is in conflict with an ESG managed fund that makes a profit.

For example, protecting the rain forest in a foreign land requires first of all buying it from the government for an equal or higher value than they are selling the rights for harvesting.

Then, you are on the first rung of the ladder in terms of defining a strategy to protect the forest for the locals and the planet.

Second, you must have a strategy for replacing the indigenous income derived from the forest before you purchased it and shut down the family operations that put food on the table and send children to school.

Third, and the final rung of the ladder, you figure out how to transfer ownership to a Trust that will manage the “environmental asset” and protect it for generations.

If you do all of this, there is no profit... you spent all the money and have no return. The profit is solely in preserving the lungs of the planet for future generations.

For this reason, the fundamental idea of an ESG focused fund is in conflict with the idea of deploying capital in to ESG ventures in most instances.

It probably is a good idea to do your research on the contents and decision making behind any ESG focused fund you are looking to invest in.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.


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About the Author

Mark has been an entrepreneur for more than 40 years. His experience spans many commercial sectors and aspects of business.

He was one of the youngest people to be appointed as a Fellow of the prestigious Institute of Sales and Marketing Management before he left the U.K. in 1988.

His column focuses on ways we can improve on success in our lives. Whether it is business, relationships, or health, Mark has a well-rounded perspective on how to stay focused for growth and development.

His influences come from the various travels he undertakes as an adventurer, philanthropist and keynote speaker. More information can be found on Mark at his website www.markjenningsbates.com

He is a Venture Partner with www.DutchOracle.com a global Alternative Investment company.

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