I am unsure what to call it…
Ethical Investing. Green Investing. Socially Responsible Investing. Values-Aligned Investing. ESG Aware Investing. Impact Investing. Divestment. Positive screening or negative filtering?
All of these terms miss the mark.
This isn’t just ‘ESG’
ESG is a loose criterion. What we do at EthicInvest is something else, although we get thrown in with the ESG bunch. What we do has nothing to do with woke capitalism, moral superiority, or telling anybody they are wrong or should be canceled. The only thing that could make a person inherently wrong, is the belief that they are divinely correct. These issues of climate change, racial injustice, inequality, and other unfair advantages/disadvantages are loaded topics. They hold so much emotional weight that we tend to load our actions and statements with conviction, aggression, and spite before we point and shoot. This is not the way forward. We have larger-than-life issues to solve in our lifetime and the obstacle remains to be the way. This is the nature of ESG. Problems need to be solved, wrongdoings done right, and progress made. This is the way of the thoughtful entrepreneur. This is the way of the egotistical utilitarian, this is the way of the 4 virtues, the middle path, the 10 commandments, or the way of the sun dancer. Countless ideologies, intellectuals, academics, and religions all embody these principles, yet simply express them through different conduits. Whatever the energy behind ESG is, is a first principles truth, and aligns with some of our other deepest knowings we have as a civilization.
We are never going to be able to statistically capture the E(Environmental), the S(Social), or the G(Governance). These issues are much more nuanced. They are three-dimensional, and their potency changes based on the individual investor, as well as the macroeconomic environment we are in. The context once again illuminates the content. When we look to the content to tell us about the context, we find ourselves running into issues. What does that mean Joss? It means that if we look at a company through the lens of just an ESG score. We miss the point entirely, the content (an ESG score, a water usage score or an executive to entry-level pay ratio) this will not give us a clear picture of the broader context (if a company is ‘ethical’ or not). It’s a piece sure, but a far cry from the picture.
ESG is the closest thing we have to what ‘ethical’ investing might be about. ESG at its core is not complicated or statistical. It is a philosophical approach to the management of assets. But what is ethical investing? Who’s ethics? To say ethical investing assumes there is a universal acceptance of what is ethical. I’m here to inform you, there is not.
ESG has become complex, multifaceted and opaque. When my mentor and business partner Anthony Edwards entered the space in 1998, it wasn’t. It was outlandish, it was radical. But it was simple. We tend to want to complicate things when we don’t understand them. And complexity is often simply stupidity in disguise. As any avid meditator will tell you, the mind has a way of complicating everything it encounters. This leads me to the fact that in order to advance capitalism, for ESG investing to thrive, we must advance consciousness. This is another blog post for another day.
Whats the point?
The question was & is simple, “how can my money make the world a better place?”. That question has nuances that are fractal in nature, and many core assumptions of what “money”, “world” & “better place” mean.
The economic layers
Many sectors have roles to play here; the private sector, the public sector, countries and nation-states, the individual, etc. It is universally true, this is part in portion where my high level of conviction comes around ESG(or something like it) as a model for future capitalism comes from.
The private sector needs to understand that it is fiscally and morally irresponsible to profit from exploiting people, the planet or to extract value in such a nefarious manner in anyway. Businesses should receive value & profits by injecting value into the economy, communities and individual lives. Give and you shall receive, this is a core tenant of the concept of karma. Investors, employees, owners, consumers, community members and all stakeholders have leverage and responsibility over how businesses show up in the world. Once again the concept of stewardship shows its head.
The public sector must continue to represent it’s people. They must work selflessly for the betterment of its population, to serve and protect its biological constituents for today and generations to come. This manifests itself in the form of political systems, frameworks, and policies which serve, in its truest sense. Net Zero targets and the deployment of clean capital are an attempt in this direction.
Nation-states, families and individuals – I employ you to slow down and ponder profoundly about your morals & values, how they are expressing themselves and if that is in the best interest of all parties involved. What is the moral decision in the context of your life? In the context of your 4-year term. What about in the context of the century? In the context of history? Or the context of the following generations? The best decision, as you will find will be the most morally aligned one across timelines. The idea behind ethical wealth management is that this decision will be the most profitable as well. If the system is working correctly, if profit is a result of value delivered, then success is simply a byproduct of morality.
Over any meaningful timeline, the more moral action will be the more valuable action. The stoics figured this out, far long ago:
“Virtue does not come from wealth, but wealth, and every other good thing which men have comes from virtue.”
Socrates
These karmic actions may manifest as dollars or cents more times than not. Or as other, more widened forms of value. Finding the balance between morality and success is a very old problem, as such, I search for very old solutions, which have stood the test of time.
What’s the difference?
Allow me to put my Chartered Investment Manager hat on for a moment: From a financial perspective. ESG is about pricing in risks. It is about risk mitigation and the pricing of previously unpriced risks that may have drastic effects on an investment or portfolio. Finding the true standard deviation of a security. Impact investing on the other hand, could be said to be about creating alpha (excess return above the market). The Venture Capitalists have long figured this out. In public markets, we seem to be lagging behind.
From a real-world perspective, ESG is about caring, solving the biggest problems, delivering the most value to the most amount of people. Doing that in a way that is conscious of all stakeholders not just shareholders. It is about being aware of your values, taking a long-term perspective, getting closer to nature, its about the relationship you have with your money, assets, investments. Less about the number, or % of annualized returns. It is about how you engage, about the process, less about the result or the what. Which may seem counterintuitive.
Thematically it is about pricing in our values, all the risks not just the risks we want to think about. This idea is about broadening the idea of what returns really are. Ethical investing takes principles of western science, dutch capitalism, eastern philosophy, stoic teachings and technological quantum leaps all in orchestra when the idea expresses itself through an ideology of how we steward wealth.
In simple terms:
ESG is mature money. ESG is patient, it allows time to play itself out over the long term. Decades and centuries. ESG is slow, as we know, slow is smooth and smooth is fast.
Politically: ESG is a bipartisan topic. It has nothing to do with a political leaning. It borrows from the left in terms of social responsibility, then borrows from the right in deregulation and free-market principles.
The entrepreneur is our saviour, not the environmentalist. The environmentalist seeks issues, the entrepreneur seeks solutions.
Here is how I would explain this to a 6 year old: If we invest our money with companies that care about the environment, about their people and how they govern inside & outside the company walls, those companies are going to have better people, make better things, show up better in the world and solve bigger problems that help a lot of people. Does that make sense? Good companies are better.
The blowback on ESG is silly, childish and shortsighted. However, how ESG has been built up to this point and mass marketed is drastically more idiotic, vacuous and dangerously immature. Elon was right, ESG is a scam.
The fact that ESG principles are not just automatically integrated into institutional and retail money management is one of the greatest large scale economic & societal business failures of our lifetimes. To talk about long term investments, is de-facto talking about ESG investing.
As Simon Sinek wrote in his 2014 book Leaders Eat Last, “rules are for lazy leaders”. I would like to expand on this as say that overregulation is a substitute for poor leadership, on a global/federal level all the way down to a family/individual level. Regulation isn’t how nature works, it isn’t how a free market works(obviously). It is my firm belief that there is wisdom to be found in submitting to something larger than yourself. This is noted in the 12-step AA process. This is noted by stoics and reiterated by Ryan Holiday in his 2016 book The Ego is the Enemy. We would be wise as human race to align ourselves with the universal laws of nature. By providing a framework and letting this grow, but setting up our organization in a way in which they can lead themselves, let leaders emerge, let the flower find where it wants to grow. We must grow the idea of ethical investing, rather than regulate, standardize and make definitions of what we believe it to be. As ugly as this time of ESG pushback may be, it is beautiful how the idea of ESG integration is growing right before our eyes.
Net Zero is great, climate change is a massive issue, the UN coming together and finding a way to address a global problem is phenomenal. Being temperamental, short sighted and political about how we go about achieving those goals is folly, doltish, ill-advised and naive. Once again, leaders or the world. I urge you to consider how slow is smooth, and smooth (as always) is fast. We must be thoughtful in this transition, millions, or billions of lives depend on it. There might be a bleak future ahead of us if we don’t. Self-responsibility once again illuminates the path forward.
Is there a philosophy to this idea?
How should we think about this idea? I would answer, with love, with compassion, with patience, thoughtfully, slowly, open-mindedly and with strong principles. We should decentralize our thinking, utilize democratic mediums and look to be as passionately curious as possible. We should look to debate thoughtfully as much as possible. This blowback on ESG is one of the greatest opportunities we could have every asked for in modern financial management. Let us have the wisdom to seize it, to grow and evolve as a biosphere consciousness.
I have become hardened, I have become aggravated, and passionate about this topic. As such it is my responsibility to become softer, lighter about the discussion, to become peaceful and calm in my relationship with this idea. So that I can engage in thoughtful discussion and most importantly debate about this topic. Because we must cultivate spaces for our minds to come together, make each other better, have iron sharper iron, and ultimately use this topic as another vessel for us to come together as a humanity, and express love. This is our evolutionary duty. Anything short of the pursuit and effort in accentuating these themes, in my estimation, is to live a life unaligned.
Thank you for taking the time to read this perspective essay on Ethical Investing. While it has been revealing and empowering to write this essay, I would like to formally invite you for feedback. I believe this conversation is one worth having, and idea worth furthering. I absolutely do not have this all figured out. If you’ve followed along this far, I would love to hear from you to have a discussion on the topic. Say hello, share perspective or however the spirit moves you! email: jbiggins@leedejonesgable.com
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