Week 5: Spinning the wheels in a dysfunctional world

In this issue: ▸ A message in my inbox ▸ 99% of companies do not truly value people ▸ A warm welcome to Gas and Nuclear ▸ In a world without leaders ▸ The ESG watchdog is coming ▸ And much more...

Dear all,

Last week I got a message in my inbox.

Like most people, I get a lot of emails, but this one was different. The person contacting me has been following my work for many years and “liked” my straightforward approach and the work I’m doing.

The tone of the message was friendly and humble, but also quite stingy.

The gist of the message to me was: You’re contributing to the polarisation by pointing fingers at companies like H&M for their lack of responsibility related to their entire business model.

Instead, I should “build bridges” and focus on how much they will “miss out” if they don’t transform their business. A glass half full approach, sort of.  

I read the message several times. Many questions started running through my mind. Carrots and sticks or carrots packaged in a friendly paper delivered in a honey basket to corporates telling them how amazing they are since they now see business opportunities in taking responsibility for the impact they create in their business. Sure. This global societal dysfunctionality reflected in the fact that companies can – and do – deplete resources and misuse people that work for them has been accepted by everyone. It’s called the market-economic system, and it provides prosperity beyond belief to fractions of people on this planet.

The cost for mismanaging nature and people (or as it’s called in a nice language: the externalities) are outsourced to societies and covered by all of us collectively.

At the same time, the companies provide us with all of the things we need, think we need and or long to have. It is sort of a deal we made and continue to make every day. We have accepted that deal, we use politicians to steer and regulate the market-economy beast as much as they can, or as much as they can afford.

Spinning the wheels, living in a dysfunctional relationship with the very planet we live on and with the very people we live among. That deal is reconfirmed on the markets, in the shops, factories etc. every day, by all of us.

I find it very distasteful to pretend that it is not dysfunctional. I never stopped believing that humans can do things beyond their own self-interest, and I never stopped believing in our ability to evolve as a species, spiritually, emotionally, intellectually. Naïve? Yes, but what else is there to believe in?  

Now, let’s stay positive and look for the bridges that we need to build!

99% of companies do not truly value people

The ESG industry gets a brutal beating in this report by the World Benchmarking Alliance. The question is if all the people working in this industry, including myself, will have difficulties looking in the mirror? What have we done, and what are we doing? For real?  

The report, which was published a week ago, finds that only 1% of companies demonstrate the fundamentals of social responsibility.

The baseline assessment conducted evaluates how ready companies are to support the transformation to a sustainable future in an equitable way that leaves nobody behind. It reveals that only 1% of the world’s 1,000 most influential companies are adequately demonstrating socially responsible business conduct, undermining the achievement of the Sustainable Development Goals (SDGs).

Half of all companies scored disappointingly low (between 0 and 5 points). A conservative estimate suggests these 1,000 companies have a combined turnover of around USD 25 trillion (more than one quarter of global GDP), collectively employ over 56.5 million people and impact many millions more through their value chains. 

The World Benchmarking Alliance’s findings show that with eight years to go until the UN’s 2030 Sustainable Development Goal deadline passes, companies are not well placed to address the major sustainability challenges in a just or equitable way. The research paints a sobering picture, with 99% of companies failing to demonstrate they truly value people. Businesses are, overall, on course to entrench, rather than end, the social inequalities that pose a global systemic risk, and their inability to put people at the heart of their thinking also undermines efforts to address the risks of climate change and biodiversity loss.

Ok, I take a break now. I remind myself that I need to stay positive, not polarise things, but see how we can build bridges. I’m reading through the report again, thinking of angles that could be used. 

Now, scrolling through some of the websites of these 1,000 companies, I read things like this, again and again:

• “We respect human rights”

• “Diversity is core for our success” 

• “Our mission is to develop the societies we live in” 

• “Climate change is biggest challenge for our business” 

• “Our sustainability policy is implemented throughout all of our business” 

Yes, the sentences get longer and longer, but they all have a similar ending. We are part of the societies we operate in and we take our responsibility.

The positive, non-polarising me now thinks: Ok, they are at least trying, step by step, it takes time, but the direction is right. Management is surely doing what they can, and the shareholders are “waking up”. Where there is will, there is result. They need to see the light and get nudged to do so. We need to “help them see it”.  1% is 1%, it is something, it is not all bad. 

It’s like saying: My dad is at least not using the belt anymore when he is beating me… It is improvement, I agree!

A warm welcome to Gas and Nuclear

Now, allow me continue my positive spree when looking at what is by some people called the biggest act of greenwashing in history. The EU Taxonomy.

Gas and nuclear are now defined as transitional green assets and can be invested in as green assets. Let’s be positive. Gas will most likely replace coal, and nuclear will be developed even more, and we can use it to produce green hydrogen in the future. It is not as unsafe as we think, and even if we don’t really have a solution for storage of radioactive waste, we might find solutions 300 years from now, and by then it is not our problem any more.

We need to cut down CO2 emissions and short-cuts are welcome since we really don’t want to change our economic model, way of living or for that matter the purpose of our economic system. Therefore, nuclear is great and gas is better than coal. Yes, it’s also a fossil fuel, but we have to start somewhere.

We need stability, people are paying huge electrical bills and we also need to revisit our “Net-Zero” pledges since they in practice just don’t fit in right now. Timing is everything, and the timing is just not right. People need cheap and reliable electricity. They don’t care where it comes from as long it is like that.

Also, elections are coming soon in a number of EU countries. So it’s one step at a time. Technology will evolve and we are going to prevail. Why all the fuzz? 

In a world without leaders

I think that one of my main conclusions after doing this for some time is that we truly live in leaderless times. The world is full of managers. We have made a deal, yes, it is dysfunctional, but we spin the wheel. What else can we do? 

Meanwhile in ESG Wonderland, none of this really matters. Sustainable investing set new records in 2021. Even with the current market tumult, anyone who thinks ESG is a bubble might want to hedge their bets.

While definitions of ESG investing vary (it can mean putting your money in anything from a wind-energy company to a Silicon Valley tech giant) assets are set to balloon to $50 trillion by 2025 from about $35 trillion, according to estimates from Bloomberg Intelligence.

The growth has been spurred by record-breaking fund inflows amid concerns about climate change and other societal issues.

And then you read that many big ESG funds are just glorified market trackers.

For example, the iShares ESG Aware MSCI USA (ticker ESGU), which claims to invest in U.S. companies with positive ESG characteristics, has dropped 5.3% since the start of the year, slightly worse than the 4.6% decline of the S&P 500.

Seventeen of the $24.7 billion fund’s 20 largest holdings, led by technology stocks, are the same as those with the heaviest weightings in the benchmark U.S. index.

Remember to stay positive…

The ESG watchdog is coming

I’ve written about the problem with ESG ratings many times before (not least here and here), so this should finally be some truly good news. The European Union's securities watchdog, the European Securities and Markets Authority (ESMA), on Thursday launched a review of EU’s fast growing but largely unregulated market for ESG ratings.

“This call for evidence seeks to develop a picture of the size, structure, resourcing, revenues and product offerings of the different ESG rating providers operating in the EU,” ESMA said in a statement.

Let’s hope they get it right. Perhaps positivity is here to stay…

Kind regards,
Sasja