The growing prominence of environmental, social, and governance (ESG) factors in investing is unmistakable, but major downsides to the trend are emerging.
ESG’s social and corporate governance components are ostensibly to compel investors to assess if a company is, for example, complicit in human rights violations or putting employee health and safety at risk. But the environmental component, which appears to be overwhelming the other two considerations, itself turns a blind eye to communist China’s record and the undeniable need for fossil fuel energy currently.
A Sept. 22 report by Hong Kong Watch (HKW) highlights the paradox that investment in China soared even as ESG factors rapidly grew in adoption.
The report, titled “ESG, China and Human Rights—Why the time has come for investors to act,” says that “most of the attention of ESG investors has been placed on environmental costs, with little attention given to human rights.”
“There is considerable investment by pension funds and other institutional investors into Chinese firms which have troubling human rights records,” stated the news release announcing the report.
‘Should Be Boycotted’
Canada’s biggest pension funds are among those that are very bullish on China. But they also want to be seen as doing their part for the environment, and they are all-in on ESG.
This worries Alex Epstein, founder of the Center for Industrial Progress and author of the New York Times bestseller “The Moral Case for Fossil Fuels.”
ESG “should be publicly shamed as a virtue-signalling, financially idiotic, and most importantly immoral movement,” Epstein tweeted on June 10 as part of a Twitter thread.
He added that “ESG is starving cost-effective energy of capital” and “should be boycotted wherever possible.”
Caisse de dépôt et placement du Québec (CDPQ), Canada’s second-largest pension plan, with over $390 billion under management, on Sept. 28 announced that, as part of its new climate strategy, it aimed to completely exit from investments in oil production by the end of 2022.
“It [CDPQ] will dispose of its remaining assets in the sector, which make up 1 percent of its portfolio, and therefore avoid contributing to the growth of the world’s oil supply,” said its press release.
If anything, however, the world is currently clamouring for greater oil supply.
The United States and India have pressured OPEC and non-OPEC partners for more supply to dampen rising oil prices. Despite this, the cartel said on Oct. 4 that it would stick to its existing agreement of implementing a gradual oil supply increase.
The price of the U.S. oil benchmark West Texas Intermediate has gradually risen all year from just below US$50 a barrel to nearly US$80.
