What's the Cost?
Capital Thinking • Issue #1093 • View online
When all the elites and smart people get on board with something that you know in your gut is wrong, but you can’t figure out a cogent way to argue their points without offending everyone or looking like you don’t care about the same thing they care about, you are probably right.
That’s ESG investing.
ESG is Bullshit (It Smells of Something Else)
If you don’t know, “ESG” is Environment, Social, Governance.
It’s a way for the chattering class and elites to try and figure out new ways to dominate and control businesses they can’t control.
It’s also a great way to make yourself look good at cocktail parties to show your concern about these issues.
When I was a delegate to the i7/G7 in Torino, Italy back in 2017, these issues came up.
I asked one question: How can I use objective analysis to compare and contrast companies with regard to ESG?
I can do it with GAAP accounting rules set forth by the AICPA. I can’t do anything with ESG and have to take the company’s word for it.
The Financial Times had an article on ESG this morning saying that companies cannot ignore it.
If I were on the board of a company, I’d definitely tell them to ignore it.
Does it mean that as a CEO or an employee of a company you throw caution to the wind and you just do not even worry about ESG-or flaunt it by being less concerned about it?
No.
But, there are marginal costs to many ESG concepts just like there are marginal costs to most actions businesses take.
You must recognize those costs. You must be able to articulate them so employees and shareholders and the market understand them.
For example, I saw a tweet by someone the other day that Americans have chemicals in their drinking water.
Of course, American drinking water is probably something like 99.99% pure. What’s the marginal cost of getting to 100%?
Does it matter to your health? What if it’s only 99.95% pure? Does it matter and what’s the cost to move the needle?
Once you look at it that way the conversation changes.
*Featured post photo by Jan Kopřiva on Unsplash