Have we passed peak ESG?

The vibe in the media has certainly changed. In the general and financial press we went from years of indifference to a period of intensifying interest and now we are in the schadenfreude stage. Rather than name-and-shame in this piece, any casual web search will turn up plenty of articles right now pointing out discrepancies, failures, frauds, or simply not living up to the hype. A lot of it is absolutely deserved as a rapidly expanding market is going to have its share of stumbles, but there might be more than a little satisfaction that this movement which is supposed to bring improved ethics and governance, more attention to stakeholders, and more sustainable and even regenerative uses of capital failed to root out companies and offerings that fell short of the mark. But, a free market shaking loose its individual failures is not the same as the market itself failing. In fact, drumming poor solutions out of the market is exactly what should happen iteratively to make the market more reliable.

There is also a certain amount of noise being made about inconsistencies in data and ratings, performance results, etc. with the underlying thesis being that ESG must not actually work or these things would not be so. By that logic nobody should invest in the capital markets at all because they are rife with inconsistencies and not just bad but terrible outcomes for investors. Reductio ad Absurdum.

Uptake of ESG has been incredibly strong, even discounting for flaws in how assets are catalogued. Data demonstrates strong uptake of ESG. The last US SIF Foundation trends report pegged the number in the US alone at $17.1 trillion of $51.4 trillion in professionally managed assets at the end of 2019 (pre-pandemic), a doubling in roughly 5 years and a massive gain in total market share. Part of the challenge in unpacking those figures, as has been discussed before, is how those investable dollars are pegged as “ESG”. Aside from the potential for counting and other process errors in compiling the data, it all gets back to how ESG is defined. And, that is a problem, because trying to define ESG is like trying to define value or art. At the risk of being a little saucy, maybe the best way to explain that is channeling Supreme Court Justice Potter Stewart’s 1964 statement in Jacobellis v. State of Ohio when explaining that there were not words to describe pornography, but “I know it when I see it”.

What does that have to do with peak ESG? In the early days of SRI and then ESG, the community within the marketplace that passionately advocated for it was rigorous in defining their own processes for being sufficiently expressive of ESG principles; but, shall we say, generous in how big the tent was pitched for measuring the total marketplace. Inclusiveness was essential in the earlier years because credibility came along with market representation. The frequent pushback on Wall Street was “nobody actually does this”, which was a real impediment to moving the industry forward. The Street is dominated by trend followers and ESG needed to establish a trend to follow. That meant counts that included dollars that were not administered with the same rigor as the best-in-class approaches of the early adherents. It required counting assets, for example, where some form of shareholder action like proxy voting aligned with ESG priorities even if the assets were not otherwise selected or managed to promote ESG. This reinforced the definitional challenge because the core of standard bearers who would otherwise define ESG with great precision were avoiding being overtly exclusionary.

Fast forward and various societal, environmental and demographic trends converged with growing uptake (and recognition) of ESG investing to accelerate us to where we are now perched atop the $17 trillion mountain. Millennials and Zoomers are applying their consumption behavior to financial services in ways that never existed in prior generations. At the same time, a substantial percentage of Boomers are now thinking generationally about the planetary and societal legacy they leave behind and are rethinking their investments with more sustainable priorities. Wall Street did what Wall Street does and jumped on the trend, and all the firms who were denying there was any substance to ESG were launching new strategies or repositioning old ones to participate. In very short order we shifted from firms being conspicuous by having an ESG offering to being conspicuous by NOT having one.

The hyper-inclusive recognition of ESG assets, and the massive rollout of ESG-aligned products and services along with enterprise-level commitments to benchmarks and targets like the Paris climate accords brings us to this peak moment, but still without the ability to really define what ESG is. That is ok, because it does not necessarily need definition. Importantly, as with a lot of consumer decisions, investors know it when they see it. We have a terrific free market opportunity where we have progressed from extreme scarcity with little from which to choose, however good it was, to an embarrassment of riches. It does require rigorous examination to locate the right solutions for a particular asset owner’s need, but the odds are much better today that the solutions exist. 

So, burning with the fires of righteous indignation, people are now throwing darts at ESG and ESG-adjacent strategies under the general principle judge not lest ye be judged. Fair enough, and any firm or strategy espousing standards and practices related to the environment, society and good governance should be able to demonstrate that in their processes and in their results. There are two separate challenges here in the unique space that is the capital markets. The first is a matter of law and regulation. You can’t lie. Whether you are a public reporting company listed on an exchange or a fund managing a portfolio of investments, you can’t lie. That is not an ESG matter, other than simply being bad big-G Governance. The combination of regulators and investors should make quick work of liars, reforming them or destroying them in short order.

Many of the issues under the big ESG tent are not ones of truth though. They are matters of perspective, materiality and quality. As an example, societally and in the markets we are mid-stream in a reckoning about diversity, equity and inclusion (DEI). DEI-informed or activated strategies would fall inside the ESG tent, but where in the tent depends on how DEI is incorporated and what else accompanies it. A company could have a wonderfully diverse leadership and board team, exemplifying the best hiring and recruiting practices in their industry and across the market, and still have a terrible track record on the environment, or workplace safety, or human rights. While there is greater likelihood that a company that performs well on DEI will show well on other ESG factors, it is not an automatic. There might be correlation but not necessarily causation.

It falls to the investor, or the investor along with her trusted advisors, to examine the other factors to decide whether it satisfies the right combination of the constellation of ESG factors to be considered investable. It also falls into that analysis to decide whether the factors being considered actually matter (materiality), and create the desired positive outcomes (quality). Continuing with the DEI case, a company could have better DEI metrics than another company in the market, but not by enough to really change anything. If the average board is a dozen people and the typical company has one woman on the board and the company being evaluated has twice the number of women (2), that is observably better, but is it material if half the population and the workforce is women but representation still doesn’t even break 20%? And it gets more complex – If the company has just implemented a robust plan to diversify its board and will add one woman every year for the next five years, quantitatively today’s figure may not be material but qualitatively the commitment to change could be. That commitment could be the deciding factor between whether going from 1 to 2 women on the board is irrelevant or significant. This is why disclosure and analysis, quantitative and qualitative, are so critical. Numbers do not always tell the whole tale, and scores are an overly simplistic and reductive way to look at an investment’s ESG merits particularly when every investor’s criteria may be different.

ESG is not one thing, and there is no objective standard attached to it. It is aspirational, which means it is as much about where an investment is going as where it is right now. There are also almost innumerable pathways into it. Some investors choose what to own. Others choose what not to own. Some do both. Few agree where the line is. They know it when they see it. Yes, greenwashing is a real problem, but it is essential to distinguish between lies and a lack of clarity and understanding. Regulators need to tackle the lies, and the financial services industry needs to tackle the clarity and understanding. Just like Sy Syms used to say sartorially, an educated consumer is the best customer. Then the free market will do the rest. We are moving out of the period of breathless hyperbole and bandwagon adopters and into a phase of discipline, critical analysis, and market reordering. There will be winners and losers and what is and is not counted will change, but the real commitment to principles of sustainable and responsible investing is still in its early stages. Now the trend emerges from the bubble.

Standing cheek to cheek

Somehow, even with the dramatic uptick in adoption of sustainable investment practices, the idea of investing in a conscious and purposeful way is still taboo. In the process of working to gain more mainstream acceptance of ESG-focused practices asset managers shifted away from the idea of aligning portfolios to individual or institutional values or missions and rather emphasized an investment-first, or in many cases investment-only approach to ESG. I have even sat through manager presentations where it was stated not just definitively but assertively that what was being shown was strictly about investing and without concern for issue avoidance or positive change for anything other than economic reasons.

What got forgotten is what motivates investors, again both individual and institutional, to want to invest in this way in the first place. Continue reading “Standing cheek to cheek”

Necessary narrative

Thistle in the Colorado Rockies

Everything that exists has a story. It might not be an interesting story, but there is a narrative for what was before, what is, and what will be. It might have been the case in the early days of SRI that the investment case was built too much around storytelling and not enough around economic fundamentals. We have now overcorrected in an attempt to be included and inclusive, and lost the motivational hook for why individuals and institutions commit to this type of investing over “traditional” options. This is not philanthropy, but there is a lot to learn from charities about how to motivate people to allocate capital with a purpose. This article in CityWire found in our Library touches on the goals beyond total return that inspire investors of all stripes to make their portfolios reflect their values and behaviors in the rest of their lives.

Is Israeli divestiture an ESG prerequisite?

I am apparently very fond of standing on the third rail, and not because of any particular affinity for public transit. Many of the big ideas in ESG and impact investing are based on almost universally-accepted principles for sustainable business, from access to nutrition and healthcare to clean waterways and shrinking carbon footprints. I attempted in this month’s CityWire pro buyer magazine to look into what happens when some of those universal principles cross into grey areas where stakeholders do not agree, in some cases at all. South African apartheid divestiture was a signature moment in socially responsible investing and one that reaped profound social returns. My question was what are managers doing with the BDS (Boycott, Divestiture, Sanctions) movement in the Israeli occupied territories since BDS is drawing from the South African apartheid playbook but is far more polarizing? What is attributed as good or bad is very different depending on the perspective of the stakeholder. Are managers even looking at BDS, and if so how does it integrate with a sustainable investment process designed to appeal to as broad a universe of investors as possible? You can find the article here or in the Library.


Can’t say this is surprising. From a policy point of view Scott Pruitt is antithetical to everything for which a good environmental steward stands. But, cabinet appointments are the province of the President with the advice and consent of Congress. We are getting the environmental policies for which the people voted. That is how it works. Pruitt took governance to new lows though, befitting regimes we (used to) laugh at in less developed parts of the world.

Nothing is won here though except a glimmer of hope that, even if we vehemently disagree with their policies, civil servants act with honor and honesty in service of their country. However, environmental vigilance is still critical on the part of all stakeholders even with Pruitt’s departure from the EPA. He is gone but the people who put him in that position, and will replace him, are still in power.

Embattled EPA Chief Scott Pruitt resigns (Washington Post)

Scott Pruitt, Trump’s EPA Chief, Resigns Under Cloud of Ethics Scandals (NY Times)

Embattled Scott Pruitt Resigns as EPA Administrator (Wall St. Journal)

The wheel keeps returning us to Standing Rock

The news cycle has certainly spoken for itself in the last few months and the last few years. So, from the great Lakota leader Sitting Bull, who coincidentally was killed at Standing Rock: “They claim this mother of ours, the earth, for their own and fence their neighbors away; they deface her with their buildings and their refuse. The nation is like a spring freshet; it overruns its banks and destroys all who are in its path.”

My latest article in CityWire USA Professional Buyer magazine takes a brief look at how an informed and aware investment process, regardless of asset class, can begin to address in a small but significant way the historical and ongoing injustices of racism, disenfranchisement and genocide perpetrated right here in the US of A.

“Righting Wrongs”, found in the RIS Library.

The modern era of mass shootings

Somerville, NJ #MarchForOurLives rally, March 24, 2018

I was a little surprised I could get this article published in a financial services journal but extremely gratified that it was. Props to the editorial staff of CityWire USA for being bold and willing to up the ante from #MeToo a couple issues ago to #MarchForOurLives this month. I attempted to (and I hope largely succeeded) build a case away from the 2nd Amendment and politics for why a truly free and fair market has a demonstrated capacity to deal with products and companies that pose a threat to the health and welfare of the public. The market is a surprisingly democratic institution in that regard, and the view of the majority, as expressed in terms of consumer dollars and investment capital, carries a lot of power that requires no law, no legislation and no abridgment of rights to express. Consumer assault weapons, WMDs for all intents and purposes, are not just bad for society, they are bad business. Market data seems to pretty strongly back that assertion. You can find the article, “Loaded Issue”, in the Library, or you can open it directly here.

Somerville, NJ #MarchForOurLives rally, March 24, 2018

A few media updates on RIS

The latest piece to appear in CityWire USA’s March 26, 2018 issue can be found in the Library or behind this link. Had to take a breather from the heavy stuff to talk about how to measure… the heavy stuff.

Speaking of heavy stuff — also from CityWire USA, this news item quoting me discusses the selective introduction of firearms screens into portfolio construction. The short version of my perspective is that selective news-driven adjustments to an investment process are gimmickry. There should be an overarching philosophy behind the process that addresses the reasoning for a particular screen. In the case of consumerized military weaponry, Julie Gorte of PAX World (now Impax) put it to me best — removing companies whose products kill when used as directed. Yes, now addressing firearms discretely is absolutely important, but a strong philosophical grounding could have reduced or eliminated the exposure ahead of time, and certainly would be influential in what comes next in the realm of things that are bad for people and the planet. You can see the quote here, and stay tuned, because the next article to appear in CityWire takes on why our children need to #marchforourlives and where stakeholder responsibility resides.

Where are our blog manners?

Apologies to our readership. This has been an extraordinary time and there is almost too much to talk about. We have some new articles that will be going up in the Library shortly. And, much to say on the blog about everything that has happened in the last month or so that shows the frailty of our planet and civil society and where responsible investment capital can be a bulwark against the things that threaten both. But for now, just miscellany.

Happy Equal Pay Day.

No, not really. Until that day is January 1st, there is nothing happy about it. Also, look at the data underlying this catch-all symbol for pay inequity. There are those who discount the significance of the difference by pointing out that women take many of the lower paying jobs in our economy like food service workers and domestic employees, and therefore that amplifies the difference when looking at men vs. women in aggregate. We would argue that is actually exactly the point. Women, who are the majority of the population and the majority of college graduates, are as a group underrepresented in high paying white collar positions and overrepresented in positions that may be essential to the economy, but grossly underpay. Inclusion riders in Hollywood are definitely a highly visible step, but in a very constrained industry vertical. The best and most investable companies are the ones that strive for not just equal pay but also fair pay — a truly livable minimum wage — for all.

Happy Earth Day.

No, not really. We live on this planet, the only one we have until Elon Musk and Jeff Bezos are drag racing space convertibles to the stars, and we pat ourselves on the back for throwing Gaia a nice party and turning off some lights for a day before returning to prior behaviors. We all love New Year, lenten, and other resolutions. Give up chocolate. Exercise more. Swear less. So maybe those three are near impossible, but what is possible is to take each Earth Day and pick a personal behavior or a corporate behavior that reflects social, environmental and economic justice priorities you can affect and change it. Permanently. Even if they are small changes, the cumulative effect could be profound. Maybe this year go down the hall to HR and ask for sustainable investment options in your retirement plan, and then go buy that Starbucks travel mug.

Wait. What?

Wells Fargo. They do so love to be above the fold. After rampant borderline fraudulent behavior with their consumer banking clients preceded and followed by campaigning for the dismantling of Dodd-Frank, they manage to further distinguish themselves from other money center banks by coming down on the wrong side of the gun issue. They definitely want a lighter governmental hand when it comes to regulating banking activities, but are all for government taking the reins on high capacity consumer weaponry (Reuters). As we are very fond of pointing out at RIS, ignore your stakeholders at your own peril. The bank’s customers, shareholders, and communities are making themselves heard. Watch that share price if they become a target for divestiture from individuals, families, charities, pensions, etc. as clients and investors.

Stay tuned. Articles, blog posts, and some interesting papers from our industry friends yet to come.

#Listen. Silence is golden.


We have been quiet for a serious stretch of time here because there has been a lot of listening to do. This has been an extraordinary moment for social justice and environmental stewardship. I said extraordinary — which is not always the same as good. So many issues of profound importance, from DACA and Dreamers to #MeToo to Bears Ears, have swirled around us. It was the first anniversary of the Women’s March and now it is Black History Month again.

This is still a time to do more listening than talking. But, we also need to selectively raise our voices to address inequity and injustice, particularly when the tools for effecting change are within our means and grasp. On this return to the RIS blog, I call attention to two articles just added to our Library. The first discusses how the stakeholders in market indexing can effect change on the matter of corporate exposure to or involvement in genocidal activities. The second examines the shortcomings of current investment practices when it comes to hierarchy and accountability for sexual assault and harassment in the corporate environment and how investors can hold executives and fiduciary stakeholders to a more exacting performance standard with consequences for failure.

As an alternative to the PDFs in our library, here are live links to the publisher’s website:

How to fight for genocide-free funds

#TooMany: How should investors respond to #MeToo?