【Note】ESG is a “scam”?
Have you heard ESG before? ESG is the abbreviation of environmental, social, and governance (ESG). The concept of ESG is widely used in investing, and it has earned more attention from the public in this decade. ESG investing can be seen as an approach to managing assets where investors explicitly incorporate environmental, social, and governance factors in their investment decisions with the long-term return of an investment portfolio in mind, as defined by Chartered Financial Analyst (CAF) institute.
Behind the fabulous definition of the term, the crucial fact is that there is currently no universal standard for assigning such issues. It is no doubt that when a tool for hedging cannot reduce the risk of investment, a blind shell was buried under people's feet in this field. Some people support the idea of ESG, yet many others consider the term to be artificial-manipulated and to bring particular purposes, such as appealing to more money from investors and bankers.
Furthermore, recently ESG was firmly pushed to the cusp of public opinion because of a tweet posted by Elon Musk, the CEO of Tesla. Musk called it a “scam” after S&P Global, the manager of a popular E.S.G. index, publicised that it had kicked his electric car company out of the index. The CEO of Tesla argued that the electric car company is one of the most contributive firms to improving climate change and reducing carbon dioxide emissions.
However, we should bear in mind that ESG is a broader concept that focuses not only on environmental problems human beings face nowadays. Based on other analysis articles, such as a commentary on Morningstar, the author said, “what Tesla’s chief executive is ignoring is that sustainable investing is more than about which companies produce environmentally-focused products, as Tesla does. The other two legs of the stool in ‘ESG’ investing are social and governance issues, and that’s where Tesla comes up short.” In other words, excluding environment, social factors, like the welfare of workers in the supply chain, and governance issues, such as tax transparency and risk management, must be comprehensively concerned.
Indeed, no common definition and standard of ESG is a significant factor in slowing the development pace of this industry. Although the shortages exist, the higher awareness of ESG will keep accelerating the regulations by policymaking or publishing relevant investing reports. As an observer in tracking the development of this industry, I firmly believe ESG must be a reliable and measurable metric to supervise the financial organisations and attract political powers to stand on the same side — strengthen a better world.
Thus, if you ask me whether ESG is a scam? I would say, “it is a large blueprint for improving the world but need all we support!”
Reference:
- Time: Why Tesla CEO Elon Musk Is Calling ESG a ‘Scam’, May 25, 2022. Available at: https://time.com/6180638/tesla-esg-index-musk/
- The New York Times: Elon Musk’s Next Target, May 19, 2022. Available at: https://www.nytimes.com/2022/05/19/business/dealbook/elon-musk-tesla-esg.html
- Morningstar: This is Why Tesla’s ESG Rating Isn’t Great, May 22, 2022. Available at: https://www.morningstar.co.uk/uk/news/221629/this-is-why-teslas-esg-rating-isnt-great.aspx
- CFA: ESG Investing ed. 3
