It's Time for ESG to go the Way of FTX
It may sound nice, but it's broken beyond repair and grants too much power to undemocratic institutions
ESG sounds nice but I think the whole project needs to be dropped. For those unaware, ESG stands for Environmental, Social and Corporate Governance. (Why it’s not ESCG is an open question.) There’s no one ESG rating agency, instead there’s something like 140 ESG ratings agencies such as MSCI and ESG Research. (Fortunately, we all know, ratings agencies haven’t done wrong by us any time in the recent past)
But I became convinced this was the wrong approach from reading Vivek Ramaswamy who made the point that the narrow mission allowed to corporations of making profits reduced the amount of societal influence they have by keeping them out of most things. I think that's a bit too much as companies should certainly be good stewards of their staff, contractors and not externalize costs (particularly through pollution).
But ESG and more broadly, "corporate wokeness" is basically allowing unelected institutions to implement social policy through giant corporate behemoths. Indeed, this may have distorted the market and lead to an ESG bubble that very well may be bursting. (This upcoming recession might follow the Dot Com bubble and real estate bubble to be known as the Crypto/ESG bubble.)
Ramaswamy also notes that all the nice sounding words used about ESG are often just about "green washing" where companies make meaningless statements or policies to cover up malfeasance. (Goldman Sachs announcing its new diversity goals right after being fined $2.9 billion for corruption in Malaysia is a good example.)
But recently, ESG has become something of a joke. In a sort of game of ESG insanity, Tesla was kicked out of its index for socially responsible companies right after Musk started trying to buy Twitter while major polluter Exxon remained. Then ESG ratings company Truvalue Labs gave Exxon Mobile a LOWER score on "leadership and governance" than FTX... right up to the day it collapsed.
Scrap the whole thing. It's a farce at this point.