ESG Scores

Moriarte · Jun 19, 2023

So I've been browsing a certain respectable database and stumbled upon some ESG (Environment, Social, Governance) scores. Database constantly accumulates all sorts of financial data, which is consequently sold to various data vendors, resellers, including financial news agencies, etc. Curious as I was I clicked on "Activities Involvement", which gave me a sort of questionnaire for compliant corporation of the future to point out if it engages in unethical activity. As it appears, catholic activities along with nuclear energy-related activities are on THE LIST when it comes to sins of modernity. Alongside alcohol, tobacco, animal testing, small arms, gambling, gmo, coal, military contracts and palm oil.

Anyway, these ESG evals are not easy to come by. They are usually sold by a number of rating agencies to investment houses and all comers. So, neither the buying side nor the selling side is eager to publish them openly. Methodologies are vastly different between different rating agencies, which led, recently, to attempts by EU and UK to standardize. To add insult to injury corporations release their own ESG reports, with their own methodologies. Like Apple, here: https://s2.q4cdn.com/470004039/files/doc_downloads/2022/08/2022_Apple_ESG_Report.pdf

What's your take? Is it perfect? Is it good practice to compile secret lists aiming to influence investment decisions? Is it good practice to compile standardized, transparent, public lists influencing investment decisions? Is standardization of this sort a good direction of thought given our vast global luck of the draw when it comes to uneven raw materials distribution, uneven productivity and technological progress? Should investors be actively discouraged (by scoring system) from investing into developing countries, because all companies in these countries have lower ESG scores than those on wall street? Some of the questions off the top of my head... but feel free to take this into any sensible direction you like.

Spoiler Apple Co :

Quintillus · Jun 20, 2023

A portion of my portfolio is in ESG-graded mutual funds. Probably in the low double-digits by percentage.

I find it both useful and at times mildly irksome. The irksome part largely comes from a, "why can't it be easier to prioritize certain metrics over others?" perspective. For example, I'd consider nuclear energy to be a positive in terms of whether I want to support it, certainly not a negative. That may change in 30 years once we have 50 million more windmills, but for now, it's a great way to get low-carbon energy, and we can figure out the nuclear waste problem later. But also, the relative weight each person puts on environment, social, and governance will vary, as well as by the categories that make up those types.

Overall, however, I appreciate that there are people evaluating and thinking about these things. Being environmentally responsible does matter, and it has for a long time but arguably more so now than it used to (or not... the air quality in Pittsburgh in the '40s and '50s was really awful). Increasingly, however, I think there also is an economic benefit to investing in environmentally-friendly assets. Carbon taxes. The likely rise of electric vehicles. The corresponding decrease in oil consumption. The already-in-the-past decrease in coal consumption. Just think if you could have invested in an energy fund in 2005 or 2010, but excluding all coal investments. You'd have likely made a lot more over the next 10-15 years than if you'd invested in a fund that included coal investments.

Governance is a little less clearly defined, but as someone who's worked at a bunch of places, I can say that how a company is run does have an impact. What that impact is, can be harder to define, especially if you're looking just at the bottom line. But I'm not 100% about just the bottom line, if I can invest in company A that has awful working conditions and returns 7% a year, or company B that has good working conditions and returns 6.5% a year, I'd rather invest in company B. But it's hard for me to research that on a company-by-company basis. The "G" in ESG is a proxy for that evaluation.

Social is probably the most subjective of the three. Personally, I'd vote for not investing in gambling or tobacco, and arguably alcohol (although I might make an exception for Scotch). Weapons also is a tricky one, arms proliferation is not good and it's hard to separate it from war profiteering at times, but on the other hand arms production is not inherently bad; see also artillery shells for defending against Russian invasions. GMO I also have mixed feelings about; yes, it feels less pure, but disease or drought-resistant crops could significantly reduce the land required for agriculture and reduce global warming. Animal testing is another one where the traditional interpretation is it's bad, but the counter-point is if you don't do any animal testing, you still wind up doing animal testing, just on humans. I'm always a bit skeptical when I see products that proclaim no-animal-testing; does that mean I'm the guinea pig? Obviously there's no need to go overboard, but it's one of the ESG criteria where I wonder, is this really a net benefit?

"Catholic activities" - does that mean support of the Roman Catholic Church? I don't see why that should be part of ESG criteria in any way. I come from a Protestant upbringing, but that just seems like a way to politicize ESG criteria for no appreciable difference in their effectiveness. If anything, at least in the U.S., the Roman Catholic Church is actually quite diverse in its members' political and social beliefs, much more so than evangelical Protestants. Is this really a common ESG criterion, or just one used by a specific firm, which perhaps has religious reasons to favor Protestants?

Lately I've invested in a mutual fund that's more strictly based on adherence to the Paris climate agreement's 1.5-degree-Celsius goals, basically just the "E" part. Overall, this seems like the strongest pillar of the three to me, and I was glad to see a fund focused on that. But, overall, with the caveat that the timeframe is not that long yet, the ESG funds I have do seem to be outperforming the general-purpose ones I've also invested in.

Kaitzilla · Jun 21, 2023

Moriarte said:
As it appears, catholic activities along with nuclear energy-related activities are on THE LIST when it comes to sins of modernity.

What did the Catholics do to Apple? :crazyeye:

The main thing that separates them from just Christians in general is the widespread sex abuse scandals against kids.

9gkj548hkm20vk79dj689bnj4 · Jun 21, 2023

I heard about it; It just sounds like a scam. And I think investors ought to do their own research.

ESG Scores

Moriarte

Immortal

Quintillus

Restoring Civ3 Content

Kaitzilla

Lord Croissant

9gkj548hkm20vk79dj689bnj4

King

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