The sustainability trend is growing as the world is more and more aware of different situations in the environmental, social, and governance areas. Wall Street is now promoting a new set of standards for public companies to investors that are called ESG investing, where ESG stands for (Environmental, Social, Governance). Environmental criteria consider how a company affects the nature and environment. Social criteria examine how it manages relationships with employees, suppliers, customers, and the communities where it operates. Governance assesses the company’s leadership, executive pay, audits, internal controls, and shareholder rights. This act aims to raise investors’ and company’s awareness toward sustainability.
The act by Wall Street is being praised by the community as they are pleased that Wall Street is finally acknowledging the problems that are happening in the real world such as air and water pollution, overuse of oil and coal, companies not treating employees properly, executives bonuses being of control and etc. However, I think this has nothing to do with Wall Street caring about ESG, but them wanting to make money out of it. If companies actually care about ESG they would have already set up a standard for each of these criteria internally regardless of the promotion by Wall Street. Besides, even if an “ESG company” turns out to be harmful to the community, the company does not have to carry any responsibility as ESG are just standards, not regulations. Also, guess who assesses the ESG score for companies and writes out reports? Wall Street’s firms and banks.
You can already tell ESG investing is a joke when even oil companies and tobacco companies are claimed to be ESG companies. Altria (MO) is one of the examples, it is so ironic and disgusting that one of the biggest tobacco companies that also sell wine, weed, and Juul claims themselves to be an ESG company when all they sell is nothing but harm to society and environment, how does it even meet the environmental standards. One of the aspects of “Social” is to examine how companies manage relationships with their suppliers. Another proclaimed ESG company, Apple (AAPL), is known for squeezing profits from its suppliers and treating them badly because they are dominant in the industry, and suppliers rely heavily on them. This is not a big deal from a business perspective as it is normal that companies want to make more money but calling this a socially conscious company is just misleading.
Also, the famous financial firm MSCI (MSCI) introduced an index called the ESG index that tracks listed ESG companies, which then allows different investment firms like Blackrock (BLK) and Morgan Stanley (MS) to make an ETF that tracks the index. The ETF is then being listed on the stock exchange for investors to invest in and the firm charges an annual commission according to the amount investor invested in the ETF. This itself helps investment firms and MSCI earn a lot more revenues with no risk at all while the ones that are at risk are the individual investors who are left alone in the dust. According to a recent report, investors now held $11.6 trillion in assets chosen according to ESG criteria at the beginning of 2018, and are still growing at a rapid rate
I definitely support the philosophy behind ESG as I agree the world needs to be more conscious of environmental, social, and governance areas and companies should be responsible to the society. However, “ESG investing” is a whole other story. It is just a sugar-coated scheme by Wall Street’s investment banks and firms using ESG as a pretty disguise to capitalize on investors and also attempt to wipe off its bad reputation at the same time. If Wall Street and companies really do care about ESG, this surely would not be the way of how it is done.
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