ESG Investing or

Improving the Lives of Others…

Perry C. Douglas | August 15, 2021

The Inclusive Agenda

 

On August 13, 2021, I was watching (COVID world reality) the memorial service, a celebration of life for my Aunt Dr. Clotilda Douglas-Yakimchuk, via Sydney Nova Scotia, she lived an extraordinary life, which demonstrates how ordinary people can achieve extraordinary things.  My Aunt was the recipient of numerous awards, including The Order of Canada, Canada’s highest civilian honour, with membership awarded to those who exemplify the Order's Latin motto Desiderantes meliorem patriam, which means "(those) desiring a better country."  She was an environmentalist, social justice and mental health activist all rolled up with a soft tone delivery, but with steely resolve, and a relentless will to win.

 

During the ceremony, one of the speakers expressed eloquently, the essence of who my aunt was, and what she stood for: “…Improving the Lives of Others and the Systems in which they Live Under.”  Those words stuck with me, they inspired me, this is humanity’s highest calling, what we should strive for in the universe…how we can impact the lives of others, how we make others feel.

 

My company is a data science firm focused on decision making, what we call applied intelligence—applying scientific methods to build fact-based solutions to solve complex business and social problems. Our objective is to develop customized, purposeful and relevant solutions that harness algorithms as necessary.  Using data for effective decision-making is part of our belief in science vs. intuition, enabling our leaders to be confident in their decisions. However, this description tells us what my company does, but after listening to my aunt’s memorial service, I realized that it does not tell people what we stand for. Therefore, I’ve now incorporated: Improving the Lives of Others and the Systems in which they Live Under, as the WHY in our business—who we are, and what we stand for.

 

Therefore, I was inspired to write this article about ESG (environmental social and governance) investing, because this is what she stood for. When you see the headline “Environmental Social and Governance” you might be led to believe that this is a wonderful thing, an investment that directly impacts the environment, the socio-economic lives of people, corporate responsibility, giving back—sounds wonderful right?  Wrong! ESG represents just another Wall Street sales tactic to sell more mutual funds/stocks to justify higher fees, marketed through the appearance of morality.

 

I recently took a look at my former firm’s website, UBS Wealth Management, amongst the top 3 wealth managers in the world. UBS has been embracing, for a while now, the global trends in Impact Investing: Sustainable Investing, Socially Responsible Investing, ESG, Alternative Investments, Sustainable Finance, Climate Mitigation Investment Strategies, Green Bonds, etc.  All trending themes that institutions and wealthy families are increasingly looking at—using their wealth, they believe to invest in a more socially responsible way. Nevertheless, the question remains: is the UBS ESG product credible?  Does it address the “positive social and environmental” needs of vulnerable communities, countries or regions?  The answer is no!  All it is, is another stock-based investment product, to generate sales using people's heartstrings to sell investments. 

 

ESG assets under administration globally have now surpassed US$40.5 trillion in global equity markets. The stock market investment establishment has found ESG a marketing godsend, driving portfolio values up, and fees right along with it, which is the name of the game.  However, a false narrative is being driven for ESG, once you dig deeper—ESG investing does not impact peoples’ lives.  Instead, it has become a stock selection component that is utilized to add a “performance” variable to the managers' portfolio, that’s about it, there is no direct social or environmental impact.  It is driven by institutional pension fund requirements for environmental and social responsibility in its portfolio. ESG investing is essentially an innovative product developed to sustain and grow the systemic environment of investing in those large investment funds, to capture the institutional and HNW money. ESG is fake!

 

Since the vast integration of ESG has been through global stock markets, logically, it has no direct or indirect impacts on the relevant issues it says it wants to address. According to a study by CDP, a non-profit that measures global corporations’ contribution to greenhouse gasses emissions, public companies continue to pollute, and their stock prices continue to rise.  Other public companies who are also polluters have engaged in nice marketing campaigns to give the impression that they care about the environment, and social issues, again fake. Many have merely divested carbon-intensive assets into private equity investors' hands who don’t have the scrutiny of the public markets.

 

The CEO of Blackrock, the largest investment firm in the world, has touted ESG investing to shore up the company’s moral standing, however, Blackrock CEO, Larry Fink, can’t hide the true intent, proclaiming: “The climate transition presents a historic investment opportunity.”  The overwhelming majority of listed companies Blackrock invests in, have yet to present credible plans to be considered authentically aligned and driving ESG principles. The reality is, according to the evidence, ESG investing does not impact lives and drive change, it only drives stock prices, along with the compensation of portfolio managers and the investment eco-system that controls the universe. While giving investors the illusion that they are impacting people’s lives and changing the systems under which they live.  

 

In a recent article in Vox.com, titled “Impact investment funds advertise great returns and social impacts. They aren’t delivering.”  The article’s research makes it clear that ESG is a stock market-created phenomenon, with no impact on “environment, social, governance” issues that affect real change, and real lives.  ESG is built on the idea that you can invest your money for impact, however, this is impossible, because you are putting your money into companies in the stock market, and their agenda is profit, not impact. 

 

So, for those who are interested in doing the right thing from an ESG investment perspective, how can your capital find its way to worthy investments that can actually impact lives?  One must seek out the disruptors, those investment funds investing in inefficient, developing markets.  Fund managers that invest in real local businesses and relevant new economy start-ups, not the stock market. Funds like the Caribbean Leapfrog Fund, (CLF) an anti-establishment disruptor, that uses innovation and the scientific methodology to invest—making money and changing lives are not mutually exclusive concepts according to CLF management.

  

www.caribbeanleapfrogstrategy.com mandate is to: The Caribbean Leapfrog Fund is a Bold, Transcending Technology Led Strategy Accelerating Entrepreneurship-Enterprise Growth, Disrupting and Changing Dynamic Power Structures and Society, Focused on Creating Extraordinary Returns for our investors.”

 

In these times, younger people seem to overwhelmingly want to invest their portfolios in socially responsible companies, and in areas of the developing world where their capital can have a greater impact. Millennials, who invest more socially conscious than their parents must seek out non-establishment investment funds like CLF, funds with mandates to invest in entrepreneurs and local enterprise for profit—demonstrating direct impacts through the application of capital. Change is not a top-down occurrence, it’s a more grassroots bottom-up phenomenon, which requires leadership, vision and courage, from both on the supply and demand side—those investors and managers. 

 

The largest intergenerational wealth transfer in history will pass down over $30 trillion in inheritance from baby boomers to millennials and Generation X over the next decades. Therefore, on the demand side, exists the capital power to led change, by demanding it…putting your money in those legit change agent funds. Disruption is what is required for a real power shift in the systemic capital markets environment.  Enough talk, only actions make things happen.

 

On the supply side, a new and racially diverse, aggressive breed of venture-private equity fund managers is evolving, this fearless group is tasked with identifying and articulating business opportunities that will make the world a better place. These new breeds of managers are coming with bold, transcending, technology-led strategies that can accelerate enterprise growth, disrupt, and deliver extraordinary returns.

 

Most of the establishment ESG fund managers today don’t do much rigorous research into the expected impacts of the businesses they are investing in; nor do they care. A data-centric analysis is required to measure the impact on investments—trust but verify. So, the inability to analyze investment opportunities based mainly on factual data, innovation, demand trends, social and environmental impacts, hold investors and our society back from experiencing the exponential return function of investing in inefficient and developing markets around the world.  Those markets and investments can transform societies.

 

Most establishment portfolio managers tend to look for value opportunities in all the familiar and crowded places.  However, the most optimal value creation opportunities, according to the data, are found, more times than not, in markets not covered by the investment establishment. Furthermore, 95% of stock market portfolio managers never consistently beat the global indexes anyway, so what are you exactly paying them for?  Why would you continue to give your money, pay ridiculously high fees when you can simply buy the index for next to next to nothing?  Logic and common sense, at some point, must come into play with investment decisions.  

 

According to the Vox article, “if there are 100 impact funds and 70 of them got worse returns than the baseline, while 30 of them did better by sheer chance, we’d hear from those 30 advertising their successful investment.”  Therefore, ESG investing is marketing, disingenuous, does not work, and is useless relative to helping the society, it just accentuates the wealth and power of this concentrated elite class.

 

The Caribbean region, for example, represents an awesome investment juxtaposition opportunity: a highly inefficient market with negative perception bias attached to it, putting it off the radar, but at the same time, it also represents the perfect environment to make a lot of money, some of the most compelling ground-level digital transformation growth opportunities anywhere in the world. 

 

So, in the spirit of my aunt, doing good requires being held to a higher standard. People ought to know that their ESG funds will be no better than an index fund and provide no measurable impact on society. ESG is essentially fake, a construct of the western investment establishment to continue to dominate global wealth and power in our universe.

 

As said earlier, millennials are the most influential demographic, they set consumer trends, including investing, and are set for a massive wealth transfer.  They are the most logical ones to help change the system, by investing consciously, money talks, and loudly! So, for those who care about social issues, the environment, and making money, your capital can lead to change, just apply it. The new breed of racially diverse, aka: not the white guys—the new supply-side investment managers must fully grasp this wealth transfer opportunity and create highly profitable venture-private equity sector and region-specific funds to capitalize on the holistic opportunity.

 

My aunt was a visionary, a teacher, and mentor, and a disruptor!  We can all get inspiration from her incredible life and apply it to our own universe to lead change. So, in the spirit of lifelong learning, when we know better, we should do better; our purpose in the universe should be to improve the lives of others, and the systems under which they live. She also said that those who seek to make change require courage, leadership, perseverance, and skill, to make things happen. So be inspired, but get equipped, and don’t sit, take action and change will take care of itself.