ESG - A ‘WokeJoke’ or What?

 

ESG - A ‘WokeJoke’ or What?

The stock market and the Bond Market, the world of money management and investing has been invaded by the Woke Folk.  Individuals invest, directly or indirectly, via pension funds or mutual funds, and seek companies or bond offerings of quality enterprises who can earn money and when it comes to bonds, those that have the expectation of paying off the debt.  Quality companies are growth or dividend paying and can be attractive.  The strength of their balance sheet is important.  Demand for products and services propels businesses to succeed.  And when they borrow, the ability to repay is important.  When we lend we want to be paid back.  Historically interest rates for borrowers reflected their ability to repay.  Rating agencies, such as Standard and Poors, rate bonds for quality, a scale that reflects highest to lower expectations of continuous repayment of obligations.  AAA is the highest.

"For years now, the cult of ESG economic activists has been working overtime to infuse unwanted, woke ideology into the American economic system because they know their social policies wouldn’t pass the sniff test from voters," Florida Chief Financial Officer Jimmy Patronis said on July 27, 2022. "It’s anti-American, anti-freedom, a deliberate attempt to subvert our democracy and not in the best interest of Florida businesses (ant business), retirees, or investors."

The Woke crowd, a minority in my opinion, has been able to introduce, with adoption by the SEC (Securities and Exchange Commission) and Standard and Poors, an additional standard.  Thus ESG. This rating is based on qualitative factors, not quantitative. An issuer’s ESG rating is determined by researching and documenting answers to a number of qualitative questions (or inputs) for each of the three pillars (E, S and G). There are hundreds of potential inputs, some subjective, some objective and some simply estimated. 

What is ESG?  E is for Environmental issues. S is for Social issues.  And G is for Governance issues.  This is where the Woke Folk are let loose to not only introduce and suggest factors to be considered, but also to influence investment management groups. The focus appears to favor environmentalists, diverse staffing and hiring practices, to include race, sex and sexual orientation, pay structures and work environments.  The more diverse receive higher ratings.  Those who provide more benefits to their employees receive higher ratings. The lower the carbon footprint, the higher the rating.  High CEO pay may cause downgrades.  You can start to paint your own picture.  A company with high demand for its products with attractive profit margins is important, but now can, having a lower ESG rating, find fewer buyers, a lower price-earnings ratio, and higher rates on its debt securities. If deserving of a high standard on the ESG scale the capital markets are more attractive. 

The term ESG was popularly used first in a 2004 report titled “Who Cares Wins.”  There is an ESG Institute.  They define ESG - Environmental, social, and corporate governance (ESG) is an approach to evaluating the extent to which a corporation works on behalf of social goals that go beyond the role of a corporation to maximize profits on behalf of the corporation's shareholders. Typically, the social goals advocated within an ESG perspective include working to achieve a certain set of environmental goals, as well as a set of goals having to do with supporting certain social movements, and a third set of goals having to do with whether the corporation is governed in a way that is consistent with the goals of the diversity, equity, and inclusion (DEI) movement. (Yes, there is such a movement.)

Joel Makeower, Chariman and co-founder of the Greenbiz Group, said this, “ESG ratings are first and foremost an independent opinion about the environmental, social and governance risks facing a company and its shareholders, not the risks to people and the planet. And the ratings can also have value as an information resource for capital.”  

There is a S&P 500 ESG Index.   Tesla was recently removed from the index; its ESG rating considered too poor.  This arose from multiple deaths involving Tesla cars, racial discrimination concerns and questionable working conditions at manufacturing facilities.  Tesla makes an environmentally favorable electric vehicle, but arbitrary concerns bounced them from the S&P ESG deck. In reaction, Musk tweeted that the move came, “Despite Tesla doing more for the environment than any company ever!” He also called ESG investing a “scam.”  Oddly enough many energy, fossil fuel companies, are still rated favorably by ESG rating agencies. 

The intent of credit ratings are to value those who access the capital markets.  S&P explains that ratings are “an independent opinion of your organization's overall creditworthiness and financial strength.” So what value is added or subtracted when ESG is considered?  Is this an attempt at valuing a real world impact being made by businesses, even when it impacts their bottom line?  Are the financial rewards/costs to be ignored?  The bottom line - it is about what businesses are doing about the environment and their communities.  Are they good citizens, good managers, good employers, good to their people, et al and this now requires a rating.

Aniket Shah, managing director and global head of ESG at the investment banking firm Jefferies Group, said. "What ESG has done, and done it more well than poorly, is that it has socialized and educated the financial and business worlds on a bunch of topics that they weren't knowledgeable about before. And maybe it's because I am a part-time academic that I think that education is really powerful.”  ‘Socialized and educated,’ part one, and a ‘bunch of topics,’ part two. ESG is making companies aware and investors of their role as a responsible provider, not just to the markets they serve, but to our water, our air, our dignity and our world. Does that need to be rated?

You be the judge, is that enough to justify businesses having large ESG departments engaged year around to complete and comply with the paperwork needed to provide those that rate the data requested/needed to provide their ESG quotient?

Right now the balance is more to the ‘woke’ left than wholly practical.  Being a good citizen is just part of business and in my view does not need a cast of employees to find data, provide data, analyze data, more qualitative than quantitative, that can result in an evaluation by either a conservative or a liberal analytical team to yield a rating that can effect the cost of doing business and investors willingness to invest.  Beware protestors too can be alerted of those for whom ‘cancel culture’ applies if the ESG rating is low. 

After the Minnesota and Portland protests/riots many gave to BLM, including Bank of America, which did not make me happy, which many have called ‘white guilt.’  Did this help their ESG ratings? And now, looking at the real picture, are they more fools for being scammed?  Much of the justification for the evidence, the data, that comprises the ESG rating is to make companies, the executives, appear more accepting, more embracing of a racial mix, intersectional hiring, and provide evidence of a work environment, product standards, and how they handle their waste materials as being responsible and compliant.  A good company does all this without the need for ESG.  In hiring best practices suggest employing those that meet the needs for the job at hand, creating a meritocracy, and not hiring to comply with standards. Look what that has done for our Federal Government.

This is just another way businesses and agencies are burdened with superfluous staff and costs than only aide in further inflation and the cost of goods and services to consumers. It is a WokeJoke. 

Thoughts.

by

Thomas W. Balderston

Author and Blogger

 

Politics Out - Sensibility In

 Politics Out - Sensibility In

We are alive today and living in a Nation mired in the mud of politics.  To free us to enable everyone to move on, to be civil, and to think independently there must be a solution.  Americans are in the majority on so many issues, such as border control, common sense energy policies, abortion/pro-life, election integrity, free speech, respect for others opinions (especially in areas of religion, marriage and gender identity), love of Country, free enterprise, a government engaged in excess and inefficient spending, parental rights in establishing education standards and curricula for their children, and voter IDs. There is more to be sure, and concerns over inflation and the cause have become a focal point of many discussions.  The American majority is neither a Republican nor Democrat majority; it is a societal, cultural and environmental majority,

Energy is an essential in everything we enjoy.  It is what is needed to produce electricity needed to grow and process the food we eat, the items we buy and enjoy, from clothing to handbags to cell phones and the internet, in addition to fuel for cars and travel, heating and air conditioning. Environmentalists are hell bent to transition from fossil fuels to solar and wind and other alternatives, as well as to have electric vehicles become the dominant passenger form of transport. That is all well and good.  Consider the following.  To make wind turbines and solar panels requires fossil fuel. To make electric cars requires fossil fuel.  To produce the majority of electricity to power our nation requires fossil fuel.  When you limit its supply without a sufficient volume of the alternative inflation results. Environmentalists overlook the fact America’s fossil fuel extraction practices are the least polluting in the world, our refineries disburse very little carbon, to include industrial and utility plants using coal, and yet when these resources cannot meet the demand, instead of looking here, the Biden Administration looked elsewhere; Saudi Arabia and Venezuela for more fossil fuel.  Why?  Similarly with pipelines, for environmental reasons and to limit the use of oil and natural gas, pipeline construction was halted, yet the resources still arrive if not otherwise shutdown.  They arrive by rail, or truck, consuming fuel while their emissions are polluting at the same time.  This form of delivery also increases the cost of energy, along with more harm to the environment, demonstrating also the hypocrisy in the current thinking at the Federal level.   

We were energy independent, and politics entered the picture.  A collective body of practical minds could have worked together to transition to less fossil fuel and more electric vehicles, more solar and wind, in a way that did not have a critical impact on the economy, by insuring there was always enough of the clean fossil fuel to meet the demands as the alternatives  became more available.  

Free enterprise is to be contrasted with socialism.  There are many facets to be reviewed on each topic.  Free enterprise as defined is “an economic system in which private business operates in competition and largely free of state control.”  Defining Socialism we have, “a political and economic theory of social organization which advocates that the means of production, distribution, and exchange should be owned or regulated by the community as a whole.”  In America the free enterprise system has made our Nation what it is today, a leader in the free world. But when ‘state control’ or that of the Federal Government weighs in, and politics rises to the surface, the independent nature of the free enterprise system is often attacked.  

The alternative is not socialism per se, but a form of largesse by the Government that exceeds common sense, a burden on the tax-payor, to distribute wealth for political gains. Regulation to control and dictate to businesses, making it more difficult for new entities to form and compete, even to drill or lend money, burdens economic growth and opportunity to the determent of community.  Government wants to control, to regulate, to dictate practices, not always with best practices considered, but for political reasons.   A free enterprise system does not suggest a dependent society, dependent that is on government for their sinecure, but one incentivized to work, be productive and be more than competitive with other nations.  A socialized system wants citizens more reliant on the government, and the government bigger with more bureaucrats employed and engaged to oversee and judge their needs.  

Free enterprise seeks an efficient government, standing aside (less regulation) to allow business to succeed.  The role for government is to insure the playing field remains fair, more as an umpire.  But with politics government can dictate wages, or mandate union employees, or enforce hiring practices, and even limit production of goods, resources and agriculture products.  When done for political reasons, favoring one political party over another, and not for common sense, rational and reasonable reasons, the social contract becomes politicized.  Subsidies by the government of various businesses, farmers, even car manufacturers, et al ,is intended to aide what the government in power wants people to use or buy.  It is an attempt to alter human nature and habits in favor of what the government prefers its citizens accept.  

We are a Nation of immigrants and immigration has been important to us since our founding as a Nation.  Between the Federalists and the Republicans of the era’s of Adams and Jefferson, and after, immigrants were aliens and until residency was established they could not become citizens.  At one time the Naturalization Act required 14 years of residency and today it is 5, which occurred in 1798, and until 1952 remained.  There are requirements to immigrate, such as extraordinary abilities, critical skills, even informants from other Nations, financial status, and more, with annual limits (675,000 permanent Visas).  The limits exclude U.S. citizens' spouses (once immigrants), parents, and children under the age of 21.  Today politics has made our borders more porous as established laws are ignored. A common question is to members of the legislatures, ‘Why, when there are laws in place, written and passed by the legislature, can they be so easily ignored or dismissed when it suits the objective of a Party in power.”  And is this habit peculiar to one Party more than another?  

Details of other areas where politics has become a cry to ignore the Constitution or change established laws, regulations and practices, would make this article far too long. The fever pitch, heated rhetoric and emotional toll on citizens whose mindset has been trained to lean only one way, as defined by being ‘woke,’ is disturbing.  Research on the source of this lack of independent thinking, rational thought, respect, and common sense finds its roots in our education system today, in the media, many pundits being graduates of a liberal education having a political purpose, and progressives who champion extreme causes with little regard for opposing ideas or ideals. There is sufficient evidence to support this conclusion in not just Education, but in large Corporations (the Disney controversy over gender neutral verbiage requirements), in Entertainment (a disproportionate racial allocation of actors in advertisements and movies), and in race relations in general (the reality of the progress minorities have enjoyed in America since founding and continuing too often ignored).   This did to occur overnight, and has been slowly put into place in our schools, colleges and universities for decades.  But now parents are beginning to realize the impact.  They are seeing their rights trampled upon and their children subjected to views they do not regard as proper.  Changes to history by the 1619 Project effort and to attitudes regarding faith, family and persons under the guise of Critical Race Theory can be found in math texts, english reading, literature requirements and testing demanding politicized results.  Truth is being subjected to lies taught and recorded often enough to be considered a new truth.  Yet it is not the truth. The Millenials are awake and want to see changes.  America is being a-‘woke’-ened!

Growing up in a family environment with strong parents, believers and achievers, is a blessing for those so fortunate.  They learn from their parents, grandparents and siblings.  But for the working class, those not home everyday, for everyone, the school system is to teach them the basics, reading, writing and math, and not the political favorite topics.  Just the facts.  But the fact is that today it is not just the facts being delivered.  It is almost universal in America that our school children are subject to the views of their teachers and professors, their political preferences laid out and to be a component of indoctrination into a less free, more subjective, and a ‘woke’ nature.  The liberal wants have been infused in texts on almost all subjects. Teachers and professors are not the voice of the majority of Americans.  They are a minority, but their politics has become far too similar, and they teach the majority of children.  We have let the brainwashing begin, but now must cleanse the system of this bias in education, business, corporate cultures, the media and entertainment.  How?  By insisting these dominant platforms of learning and working become de-politicized, or politically free.  

Insist teachers, professors, teach and keep their opinions to themselves. Have curriculums without politics.  Where you work should focus on the job or duties to be performed, without any requirement to give a portion of your paycheck to a political Party or show Party loyalty to progress.  Freedom to work as you prefer, in a Union or not. It is a right to work, not a requirement to only work as a member of a union. That is political. We need less cancel culture and more open minds. We need the freedom to listen to opposing views and audience participation without fisticuffs or protests by the close minded. We need places for our children to be fun and happy, not efforts to subject their minds to controversial viewpoints or bias. Banks and large enterprises should avoid spending their money, our money, on political action entities, such as Black Lives Matter, or Planned Parenthood, even proclaiming a work place where travel to have an abortion will be paid, or taking sides in any political issue.  

Many businesses today want to seem ‘woke.’ or socially responsible, but doing so can be accomplished leaving politics to the Politicians. Focus on the task at hand, not a compliant human resources department burdened to meek socially minority ‘woke’ demands, as if that will make a business better.  That should be the goal anyway. Leave opinion, and personal politics to the individual, to the voter, to the politicians themselves.  Equip the individual with the facts, not corrupted by opinions, other than those of the politicians themselves.  

We need an environment that insures all of us are independent thinkers.  Most people know well politicians wear their prejudices on their banners, express them in their speeches, they attack their opponents, they alter the truth, they lie and they blame others. Leave those habits to the politicians, and let the truth be heard by our educators and business leaders. Teach every citizen to be honest, respectful and truthful. They will then be able to discern, understand and make sensible judgments, especially when they vote.  Today too many do not think for themselves, they react and often do so without knowing the full extent of an issue. We have been made aware of the many times politicians seek passage of new laws based on emotion, and not the content of the bills themselves.  It is the issue they want passed, not the law; that will be left to others to work out, staff members, interns, and recent college graduates with the prejudices the legislatures prefer already instilled in their nature.  An example is the SCOTUS expected decision on Roe v. Wade.  It does not eliminate abortions.  It takes such decision out of the Federal Government and leaves each State to decide. There was even an attempt, thankfully failed, that sought to Federalize abortions even before the actual decision of the Court was released. 

Is it the millennials that are making waves, working and paying taxes, having children, that see what is happening?  They want change and are wiling to speak up.  They may be the silent majority that now talks, along with the generation X’s as they evolve. Individuals are a powerful collective.  Keeping them at bay is the objective of the politician.  Freeing them should be the objective of our education system. But if the education system continues to be structured and taught by disciples of a progressive minority, and not the national majority, then we may be doomed.  The family, the parent, the achiever, the entrepreneur, and the religious will be reduced to units seditious to those in power.  We may see the rise of the Federalist wanting a modern Sedition Act, a Disinformation Bureau, that can judge truth and speech, and suppress that which they, those politicians, deem unworthy or personally offensive.  I made a note recently from an article, “truth hardly reigns supreme in our political discourse.  It’s full of half-truths, non sequiturs, spin, even outright lies. There is an entire industry within politics dedicated to propagating this - they’re called the communication teams, and they work for our elected lawmakers.”  Are members of these teams to be trusted in monitoring truth?  Can they be responsible content monitors, neutral in any way? I say no. What is a valid comment, or not,  in their view is culturally, economically and socially biased for sure. 

In the investment world there are rating agencies, such as Standard & Poors (S&P). Politics in ratings that influence buyers is wrong, but indeed there is a movement afoot. Adding ESG (environmental, social, and governance) to rating of State’s bonds, even businesses. This is a skewed number with no reflection on the ability of a borrower to repay debts. It relates to hiring practices (race and sex), air quality (carbon emission practices or laws), and liberal or conservative views in government. This is a clear example of the ‘woke’ going too far, influencing or distorting investors awareness of the true quality of their investment or borrower. Attempts to pressure pension funds, et al, to only invest where ESG is high.  But ESG has nada to do with a borrowers ability to pay.  That is the point.  Politics in this area is senseless.  What it is, a form of cancel culture that will raise the cost of borrowing, doing business, for those not sufficient ‘woke,’ that is with low ESG. 

Rid politics from our everyday life-learning venues.  Leave it to the town square, the soap box orator, the TV politicians to spew their diatribe, their distortions, their lies, and equip yourself, insure your children are equally equipped, to think for yourself, be objective, and respectful.  The world will be a better place, and we will all feel better about our Constitution, the First Amendment, the freedom of speech and the freedom of assembly it guarantees. Let not the lectern be a bully pulpit for harmful ideas.  Take the politics out of our institutions and return sensibilities and common sense. Turn the mud-pit of politics into a garden free of distortions effecting our growth and prosperity.

by

Thomas W. Balderston

Author and Blogger