To start with I want to assure everyone that I believe we all should do what we can to make the planet a place that our grandchildren and future generations can comfortably live. In order to do this we should not waste precious resources, should do what we can to recycle and make sure that we leave the planet better when we leave than when we arrived. I also believe that all people are created equal. We are not all the same, but we are all equal. And I also believe in treating people the way that I want to be treated. Believe it or not, these three fundamental beliefs are the basis for the newest fad on Wall Street. This fad is called ESG investing. Environment, socially responsible and governance. ESG. Why am I discussing this today? Well, it is because it is the newest Wall Street ‘push’ for investors (i.e. FAD) and we all should be aware that it is not exactly what it seems.
So, these three beliefs are fundamental to the way I think most live their lives, and certainly core to how my family lives ours. I really believe in doing smart things to not overly impact the planet, heck, its pretty obvious that clear cutting forests is not only inefficient but dumb and if we pollute our water systems we won’t make it as a species. Being environmentally smart is good. I also believe that companies should to a great extent reflect individuals. They should be environmentally aware AND have policies in place that are socially responsible. This can mean different things to different people but to me it means that companies should treat others as they wish to be treated. Employees, vendors and customers. And in order to make sure that this is done appropriately you need good governance. The stewards of the business, similar to the stewards of the church, synagogue or your family should treat each other fairly, honestly and with compassion.
These concepts should not be new to anyone.
Yet today the number one new concept on Wall Street is ESG investing. Over the past several years there has been a proliferation of mutual funds, ETFs and other alt investments all geared towards this ‘new’ concept. In fact, according to Bloomberg, ESG assets are on track to reach $53 trillion, based on our analysis, up from $37.8 trillion by year-end. They jumped to $30.6 trillion in 2018 from $22.8 trillion in 2016. While Europe accounts for half of global ESG assets, the U.S. has the strongest expansion this year and may dominate the category starting in 2022. One has to ask, 'why is Wall Street obsessed with what should be a simple and logical concept?’
Lance Roberts wrote a piece in February that addresses this question. Although some may say he’s cynical I believe that when Wall Street all of the sudden tells us that something is new, or that there is a better mouse trap, we have to be cynical.