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Companies with good ESG scores pollute as much as low-rated rivals

ft.com

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Re: Companies with good ESG scores pollute as much as low-rated rivals

#51

Post by water9 »

distant_hat wrote: post #48

Often companies with good ESG scores optimize for having good scores. Its like studying to the test and they may have particularly poor results outside of the test that they have studied for. Also, ESG is political and like all things that involve politics, many things that may be good for the score may be bad for the environment. Easiest example to see is in energy with things like nuclear power, and 'biomass' and c…

Nuclear power if done safely is a much better alternative than say windmills which require extensive mining to make and kill thousands of birds a year.

Re: Companies with good ESG scores pollute as much as low-rated rivals

#52

Post by Ekaros »

JamesBarney wrote: post #41
Dig1t wrote: post #3

A component of ESG scores is how much you discriminate against white people. So of course you can have a good ESG score yet be a polluter.

A couple of hiring managers from oil and gas companies have told me there is a strong push to try not to hire white ICs if you can help it. This makes more sense in the context of trying to get a good ESG score to improve their P/E ratio.

Wouldn't good ESG score mean worse P/E ratio? As that would mean driving up the Price while Earnings might not be affected?

Re: Companies with good ESG scores pollute as much as low-rated rivals

#53

Post by cryptonector »

tfandango wrote: post #10

ESG is tricky to talk about thanks to the politization of it. I work on some projects that involve ESG data and I have some thoughts. First there's LOTS of factors. If you bunch them all up into one number, it becomes meaningless as the article describes. I would think wiser minds would use this data to make investment decisions based on some specific risk, like hedging against some environmental disaster which may a…

> ESG is tricky to talk about thanks to the politization of it.

"ESG is tricky to talk about because it is inherently political."

There, I fixed it for you.

Re: Companies with good ESG scores pollute as much as low-rated rivals

#54

Post by Ekaros »

lantry wrote: post #27
throwawa14223 wrote: post #6

As far as I can tell ESG is a huge 'begging the question' problem. Companies with good ESG scores do better because we invest in companies with good ESG scores.

But shouldn't the "free market" correct for this? If most people are putting their money into ESG but there isn't a real underlying performance difference, that creates an arbitrage opportunity for people willing to invest in non-ESG? Sadly, I can already hear the right-wing rebuttal: "the market isn't truly free because of the (bankers) running blackrock! we need govt intervention to ban ESG, then the market will be…

I think we can conclude that market isn't efficient. There is enough of big enough players that don't even try to invest in optimal manner. Think of pension funds and Sovereign wealth funds. If those are moved to invest ESG related it will naturally drive ESG up.

And really I think whole market is not in sensible shape in general and has not been for a while. Not that crash is imminent or can't be kicked down the road a few more times.

Re: Companies with good ESG scores pollute as much as low-rated rivals

#55

Post by JamesBarney »

Ekaros wrote: post #52
JamesBarney wrote: post #41

Earlier quoted context omitted.

A couple of hiring managers from oil and gas companies have told me there is a strong push to try not to hire white ICs if you can help it. This makes more sense in the context of trying to get a good ESG score to improve their P/E ratio.

Wouldn't good ESG score mean worse P/E ratio? As that would mean driving up the Price while Earnings might not be affected?

What a better P/E ratio depends on whether you're buying or selling. As the CEO you want the highest price possible for your earnings.

Re: Companies with good ESG scores pollute as much as low-rated rivals

#56

Post by Ekaros »

JamesBarney wrote: post #55
Ekaros wrote: post #52

Earlier quoted context omitted.

Wouldn't good ESG score mean worse P/E ratio? As that would mean driving up the Price while Earnings might not be affected?

What a better P/E ratio depends on whether you're buying or selling. As the CEO you want the highest price possible for your earnings.

Then it is probably better just to speak about straight up price.

Re: Companies with good ESG scores pollute as much as low-rated rivals

#57

Post by im3w1l »

If you squint a bit, you can see some parallels to the AI alignment issue. Like it's clearly important to align AI, but what exactly should we align it to? How do we come up with one score that measures goodness? And it turns out that if you get the score just a tiny bit wrong, it can lead to big issues and people hating it so much they wish there wasn't any score at all.

Re: Companies with good ESG scores pollute as much as low-rated rivals

#59

Post by ke88y »

Aerroon wrote: post #43
psychphysic wrote: post #29

ESG is a waste of time, I can't wait until this fad dies down.

When I first read about it I thought someone was playing an elaborate joke. It makes no sense why such ephemeral concepts should somehow lead to better investments. If anything, the entire ESG score thing seems like a scam to get people to make bad investments and to then bet against those investments.

> It makes no sense why such ephemeral concepts should somehow lead to better investments.

Each component alone makes sense, if interpreted in a way that is consistent with shareholder capitalism.

1. Environmental. Interpreted in terms of shareholder capitalism, Environmental might mean something like "how well does this company work as a hedge against increasingly likely tail risks, and how resilient will it be to policy changes should those increasingly common tail risks result in secular or policy shifts".

E.g., a re-insurance company that is well-positioned WRT coastal flooding risk but which runs all of its offices on artisanal coal-fired powerplants -- that are a cheap and easy to replace with solar if and when needed -- should have a higher "Environmental" score than a "net zero" re-insurance company that is highly exposed to coastal flooding risk.

2. Social. Interpreted in terms of shareholder capitalism, Social should mean that middle management is not eg over-paying for labor from the Good Old Boys network instead of taking advantage of the cheapest available labor that meets quality requirements.

3. Governance. Interpreted in terms of shareholder capitalism, Governance might mean that you don't give a single founder or board member the ability to over-ride the preferences of the majority holders of equity. Also things like decisions being transparent to shareholders and so on.

The joke isn't ESG per se. The joke is that ESG as implemented makes the completely idiotic assumption that shareholder capitalism can do anything at all to solve political fissures or account for externalized costs.

Re: Companies with good ESG scores pollute as much as low-rated rivals

#60

Post by tfandango »

lowkeyoptimist wrote: post #33
tfandango wrote: post #10

ESG is tricky to talk about thanks to the politization of it. I work on some projects that involve ESG data and I have some thoughts. First there's LOTS of factors. If you bunch them all up into one number, it becomes meaningless as the article describes. I would think wiser minds would use this data to make investment decisions based on some specific risk, like hedging against some environmental disaster which may a…

Partially the politicization of it, but also because it is lumping together three issues that the society cannot even broadly agree one of the issues within 'ESG'. I don't think it is difficult to see why "ESG" is political by its nature.

Thanks this is a nice way of saying what the other poster said :)

I agree, ESG is just a bunch of numbers but if we can't agree on what the right output is then it's political in nature. I wonder if society has a bigger issue with disagreements about the E and S rather than the G, maybe not?

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