Balloon Leprechaun Matters2

VALUES FIRST - ESG LATER

THE IMPORTANCE OF BEING EARNEST

Environmental, Social, and Governance (ESG) criteria are an almost mandatory aspect of today’s investment markets. But is this a fad?

Well, it’s almost a decade since the biggest companies are using Corporate Social Responsibility reports in a systematic way, with some precursors of this practice starting well over 20 years ago (kudos to you Procter&Gamble).

It seems like these reportings and “metrics” are here to stay, but what do they actually mean?

Let’s leave aside for the moment impact investors and those activists that prefer to have their actions speak for them (this could very well be the topic for another post). What does really lie behind the broad and vague definition of ESG? After all, these three words only represent the entire planet (Environment), the totality of the human race (Society) and its inner workings (its Governing principles).

Balloon Leprechaun Matters2

THE LEPRECHAUN AND ITS POT OF GOLD

It seems that the term “sustainability” has shifted its focus from social and environmental to a more financial and economical meaning. Sustainable Investments is a term that sells pretty well on the markets but that, upon closer inspection, can roughly translate into “hey, let’s not create more problems, everybody”. What would just be a principle of common sense now has its revolutionary definition in the books of everyday financial markets. 

Or, maybe, this is what is really going on: the markets are paying a premium in order to participate in investments that create a positive impact on our lives (or at least do not harm our planet) and this represents an opportunity to wear a green hat and grow the pot of gold. The Leprechaun  sees the opportunity and re-brands its portfolio trying to package unsustainable and unecological deals with marketing-friendly labels: green is the new black.

ESG Integration, that is the most recurrent ESG strategy in the USA, don’t really preclude any investment activity in organisations with harming policies and procedures. They just include, or integrate, ESG risks and opportunities into the old standard analysis. While the strategy that is mostly used worldwide (including here in Europe) limits its scope to a Negative Screening of its opportunities: the old, “let’s not create more problems” approach we were referring to earlier.

Is there a way out then? It seems so. Or at least the vast majority (87%) of asset managers, owners and advisors, seems to grow more and more dissatisfied with the state of climate risks in companies’ valuations.

And this is a starting point. When the public demands certain products, the industry fills a gap providing inadequate substitutes and the managers and professionals in the industry start growing more and more dissatisfied, the chance for change sees its opportunity. And this is the chance for resetting our moral compass, stop green labelling everything and start talking about values in valuations.

Balloon Leprechaun Matters2

SUBSCRIBE TO OUR NEWSLETTER
TO RECEIVE UPDATES ON NEW ARTICLES

ideas matters2

Ideas Are In The Air

Successful businesses are usually borne out of one simple thing: a fantastic idea. But ideas belong to everyone. When the ground is ready for new ideas...
Karma Matters2

Karma Works

Everybody has a desire to accrue wealth – we all want more money for our families and for ourselves. But the vast majority of us...
Blind Teaser Matters2

Blind Teaser

If you have decided to sell your business or are looking for investments with Venture Capital, you may be wondering whether to advertise your business with an anonymous teaser...
Investment Timeline Matters2

Investment Process

Closing an investment is something that could theoretically take less than a month, but this almost never happens. Normally six months is a good ballpark to start preparing your agenda, but what…
Spock Meme Matters2 ORIGINAL

A Call For Logical Thinking

REDISCOVER SCIENCE Please let’s start behaving rationally, people. The strain that this coronavirus pandemic is having on our social behaviour, coupled with the velocity and accessibility of social media is fuelling a…

SUBSCRIBE TO OUR NEWSLETTER
TO RECEIVE UPDATES ON NEW ARTICLES

Valuation

How to value my company? Sure, you want to…
Sapce Matters2

TRLs

Technology Readiness Levels (TRLs) are a type of measurement…