LETTER: Flawed thinking around sustainable investing
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The upheaval of life as we know it as a result of the Covid-19 pandemic has escalated calls for the application of environmental, social & governance (ESG) principles across all industries, to build a better world. This has been particularly evident in financial markets, which have seen the wreaking of almost unprecedented havoc across global markets, with the interruption of supply chains and the drying up of demand.
Globally, sustainability themed funds saw record inflows in the first quarter, while the rest of the markets were leaking hundreds of billions in outflows. It seems the Covid-19 crisis has reinforced the belief among investors that ESG will have a material effect on their shareholdings over the longer term.
However, there exists increasing debate around the role of ESG investing and stakeholder capitalism in driving optimal returns for shareholders. Just last week we saw two arguments in this publication questioning its value when it comes to driving market returns and real, fundamental change in our world.
One article in particular, by the Financial Times’s US financial editor, Robert Armstrong, contended that ESG investing rests on weak conceptual foundations and should be viewed suspiciously by investors seeking adequate returns or citizens advocating change for a better world (“The dubious appeal of ESG investing is for dupes only (../../../ft/opinion/2020-08-23-the-dubious-appeal-of-esg-investing-is-for-dupes-only/)”, August 23).
This kind of thinking is deeply flawed in that it fails to recognise the economy as a subset of society, which in turn is acutely reliant on the safe functioning of the global biophysical system. Sustainability as a field sits at the intersect of complex system science and normative ethics. The systems science side of it focuses on the interplay between the biophysical, social and economic aspects of our existence. The normative ethics aspect draws our attention to issues such as human rights, earth jurisprudence, articles of religious faith, and cultural norms and practices.
In failing to acknowledge this critical systems interplay, Armstrong displays the blind spot of shareholder capitalism, which is that it exacts a heavy price on society and the environment, and often these externalities go unpriced in the markets. By taking a singular system view on the economy and failing to recognise its interconnectivity, he completely overlooks what society and science are telling the world. Similarly, he takes a narrow view of capitalism and fails to see it as an evolving set of concepts that have been shaped through time. ...
Globally, sustainability themed funds saw record inflows in the first quarter, while the rest of the markets were leaking hundreds of billions in outflows. It seems the Covid-19 crisis has reinforced the belief among investors that ESG will have a material effect on their shareholdings over the longer term.
However, there exists increasing debate around the role of ESG investing and stakeholder capitalism in driving optimal returns for shareholders. Just last week we saw two arguments in this publication questioning its value when it comes to driving market returns and real, fundamental change in our world.
One article in particular, by the Financial Times’s US financial editor, Robert Armstrong, contended that ESG investing rests on weak conceptual foundations and should be viewed suspiciously by investors seeking adequate returns or citizens advocating change for a better world (“The dubious appeal of ESG investing is for dupes only (../../../ft/opinion/2020-08-23-the-dubious-appeal-of-esg-investing-is-for-dupes-only/)”, August 23).
This kind of thinking is deeply flawed in that it fails to recognise the economy as a subset of society, which in turn is acutely reliant on the safe functioning of the global biophysical system. Sustainability as a field sits at the intersect of complex system science and normative ethics. The systems science side of it focuses on the interplay between the biophysical, social and economic aspects of our existence. The normative ethics aspect draws our attention to issues such as human rights, earth jurisprudence, articles of religious faith, and cultural norms and practices.
In failing to acknowledge this critical systems interplay, Armstrong displays the blind spot of shareholder capitalism, which is that it exacts a heavy price on society and the environment, and often these externalities go unpriced in the markets. By taking a singular system view on the economy and failing to recognise its interconnectivity, he completely overlooks what society and science are telling the world. Similarly, he takes a narrow view of capitalism and fails to see it as an evolving set of concepts that have been shaped through time. ...