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QUESTIONING ESG ESG insiders demand course correction to fix industry boasts 
There's growing skepticism, even inside the ESG industry, about claims of sustainable investments ... Pixabay Original article: https://www.financial-planning.com/articles/esg-insiders-demand-fix-to-greenwashing-industry Peter Burgess COMMENTARY Back in the mid 1990s the idea of Triple Bottom Line (TBL) reporting was promulgated, but did not get much traction. The idea was that there should be reporting of financial results (Profit) together with Social impact (People) and Environmental impact (Planet) by business organizations. The idea was warmly welcomed by social activists and environmentalist, but had a cool reception from corporate executives and investment managers. There were some initiatives related to Corporate Social Responsibility (CSR) but only a very few major corporations took this seriously either. Over time, there has become two separate reporing strands: (1) the conventional financial reporting using all the rules and regulations of FASB, SEC and the rest; and (2) a growing proliferation of sustainability reporting that is fragmented in a thousand different ways. ESG reporting ... that is Environment, Social and Governance reporting ... has emerged as the biggest framing of non-financial reporting and most used by the investment community and fund managers. To be blunt, ESG reporting is a joke. It has much of the same characteristics of corporate financial reporting as it was in the 19th century before the accounting and audit profession emerged to stop the blatant corporate misinformation that was the norm in the early days of the industrial revolution. There are now two strands of corporate reporting: ESG and Profit. It is convenient to keep them separate and develop reporting approaches that keeps them apart, and heaven forbid, linked together in any way. For a big part of my career I was a corporate CFO and something of an expert in cost accounting and management accounting. Decision making in this space is not rocket science. It is pretty basic. When you increase wages for the employees, the costs go up though the quality of life for the workers should be getting better. When you improve a process to reduce pollution, the environment should benefit, but the costs will go up. When costs go up, profits go down. These linkages are immediate and very real. For profit accounting which is all about the here and now, and doing reporting for environment, social, and profit in one coherent and comprehensively linked reporting framework is going to be bad news for almost all investors. The corporate world is already bad news for society and the environment. The system has been financialized in a way that makes it look good for investors, while it is degrading both society and the environment at an ever increasing scale. Good to see this article !!!!! Peter Burgess | ||
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ESG insiders demand course correction to fix industry boasts
By Saijel Kishan June 07, 2022, 4:39 p.m. EDT With ESG increasingly maligned these days from both the inside and the outside, some of the industry’s early devotees say it’s time for a course correction. Jerome Dodson, the retired founder of one of the world’s largest ESG-focused investing firms, said a dedicated watchdog is needed to help police marketing claims. Marcela Pinilla, who’s worked in the business for 15 years, said environmental, social and governance issues need to be considered separately, not lumped together under one acronym. And Matthew Kiernan, a pioneer of ESG corporate ratings, said both the industry and regulators need to double their efforts to stamp out exaggerated claims and root out bad actors. The current maelstrom should be seen as “manna from heaven,’’ said Kiernan, co-founder of Invest Green, a Toronto-based firm that educates investors on sustainable investing. “It should ideally catalyze a big shakeout” and “result in a smaller, leaner industry with much better clarity and quality.'' The list of insiders discomfited by the growth of the industry — valued at about $40 trillion by analysts at Bloomberg Intelligence — has jumped exponentially in the past year. They bemoan newer entrants that have jumped on the bandwagon to market investments that have little real-world impacts. They say widely used ESG ratings are riddled with errors and need to be standardized, and they want asset management firms to face tougher scrutiny. After doing little during the early years of the ESG bonanza, regulators are trying to catch up. Just last month, the SEC proposed a slate of new restrictions aimed at ensuring ESG funds accurately describe their investments. Some funds also would need to disclose the aggregated greenhouse gas emissions of companies they’re invested in, according to the regulator. Dodson, who used to run Parnassus Investments and has described the market boom as “disconcerting,’’ called for the creation of a group modeled on the Financial Industry Regulatory Authority, a Wall Street watchdog. It should be a nonprofit organization backed by the government that charges fees, conducts audits and exams and has enforcement powers, he said. The end result would be more firms getting kicked out of the business for failing to adhere to the highest investing and marketing standards, said Dodson, who retired last year from Parnassus, which he founded in 1984. The firm now manages $47 billion from San Francisco. When the investment strategy was conceived in the mid-2000s, its intention was to help investors measure risks and opportunities from environmental, social and corporate governance-related issues. It has now morphed into a myriad of investment strategies ranging from mutual funds to complex derivatives designed by Wall Street banks. For Pinilla, director of sustainable investing at Boston-based Zevin Asset Management, the criticisms are welcome because they shine a spotlight on widening concerns about industry practices, especially among newer entrants. A rethink will help separate “the wheat from the chaff,’’ she said. “We need to be examined. It will help people get more precise about what exactly they’re doing.’’ Pinilla said ESG needs to be “decentralized” so that those making claims spell out their analysis of risks associated with “the E, the S and the G.” For example, investors would analyze workplace diversity as a separate topic from greenhouse gas emissions and corporate governance rather than lumping their analysis together, she said. “While they intersect, they need to be understood individually, not neatly bundled together,’’ she said. It’s an approach that would make it harder for fund managers to claim that Tesla, for example, lives up to the ESG label. While the electric-vehicle maker meets the standards of an environmentally friendly stock, its track record on social and governance issues raises a lot of awkward questions. Early signs have emerged that investors are souring on the process. They pulled a record net $2 billion from U.S. equity exchange-traded funds in May, ending three years of inflows, according to Bloomberg Intelligence. The redemptions are early signs of investors’ concerns about ESG as global financial markets are rattled by inflation and the ongoing war in Ukraine. Kiernan, whose scores became the foundation for those sold today by MSCI, the world’s biggest provider of ESG ratings, said the industry needs to double its efforts to fix the ratings system because they’re inconsistent and too many money managers use them to decide what stocks to buy. Additionally, industry groups need to raise their standards to winnow out fund managers who aren’t following through on their commitments to the strategy, while institutional investors need to be more discerning about which managers they give their money to so that money only flows to those that are doing bona fide sustainable investing, he said. If these three steps are taken, the amount of money investing in so-called sustainable funds would drop in half from the $2.7 trillion now estimated by Morningstar, Kiernan said. While there will be “a rather awkward transition,’’ he said it will ultimately result in genuine ESG funds “standing out and attracting more capital. “Self-designated ESG investors, especially those running somebody else’s money, need to raise their games,” he said. “Big time.” Saijel Kishan ... Bloomberg News ------------------------------------------- FINTECH What to expect as the INVEST wealthtech conference returns in person ... This year’s event features more than 40 sessions and 80 speakers, with demos, interactive panels and keynotes with industry impact makers. By Justin L. Mack June 6 TAX Inheriting a retirement plan? The IRS gets pushback to its stark proposal ... When the tax agency said annual withdrawals would be required before an account is drained by year 10, it created a firestorm. Here’s what’s happening now. By Lynnley Browning June 7 Many heirs of retirement accounts appear unaware of the IRS proposal for required annual withdrawals.
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