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The subjective nature of ESG

By Paul Gambles, MBMG Group

The unknown origin of the saying “the road to hell is paved with good intentions” long precedes the current vogue for ESG (environmental, social and corporate governance) approaches to investing, but in many ways, it could have been coined for exactly that purpose, perhaps reflecting the long history of such concerns.

Before the UN even coined the term ESG as a way of updating and expanding their Millennium Development Goals (MDGs), there had already been renewed interest in what was then known as “ethical investing”. In fact, the history of what we currently call ESG dates back 5,000 years.

One of the first known civilisations, the Sumerians of Mesopotamia, introduced the concept of “debt jubilee” to counter concerns that the practice of lending by those who had surplus capital to those who were deficient in capital inevitably led to inequitable consequences, including literal “debt slavery” for defaulters, whilst in Babylon, the Code of Hammurabi, addressed similar concerns. As David Graeber pointed out: “These rulers were not likely acting out of humanitarian concern as caretakers of their subjects. They were trying to avoid their very societies being ripped apart as their hopelessly indebted subjects fled or became landless debt peons.”

Ancient Jewish laws also imposed comparable restrictions on investor behaviour, while sharia law still observes the prohibition of interest on loans, in line with various passages in the Quran as well as in other teachings of Muhammad.

More recently, John Wesley sought to infuse Methodist values in all aspects of eighteenth-century life, including business and investment, famously asking, “Are our people good economists?” His own answer to that, in public and private, was to “enlarge on economy as a branch of religion.” The expansion of empire and the New World took Methodist values “global” alongside the resettlement in North America of pioneers of the Religious Society of Friends, better known as the Quakers.

Quakers from the Cadbury, Fry and Rowntree families are remembered to this day for their business imprint in sectors like chocolate and confectionary manufacturing – providing working men a “healthier” alternative to alcohol. Quakers famously introduced screening, a method emulated in ESG investing today, to exclude business activities that might be regarded as unsuitable; although many businesses that might raise eyebrows in 2022 (banking, broking, life assurance and money transfer) were operated by Quakers such as the Barclay, Cornell, and Webb families, but were however operated along Quaker lines. According to Ian Hislop’s documentary When Bankers Were Good, these businesses were very much better for doing so.

The completion of 20th postwar reconstruction heralded the questioning of societal values in the 1960s, in turn prompting the ultimate spokesman for exploitative capitalism, American economist Milton Friedman to formulate the false notion that social responsibility adversely affected a firm's financial performance. This was understandably popular with capital market participants.

Recognising that there is the need to push back against Friedman’s falsehoods is much more obvious than understanding how to do so. A large part of the success of the MDGs has been the facility within which they create frameworks that can be adopted and calibrated, enabling scores to be produced. Of course, if it becomes easy to produce statistical scoring, it can also be easy to manipulate it, highlighting the fundamental diffculty of investing, or making business decisions based on any form of social or religious belief – they become inherently subjective.

The UN’s subsequent updates to the MDGs, most notably the 2015 Social Development Goals (SGDs), which aimed amongst other things to eradicate poverty and hunger, and provide access to good health, gender equality, clean water, improved infrastructure, climate action, peace, justice, and strong institutions by 2030, partially addressed the growing tendency to “greenwash”.

Despite this current drift, the New Climate Institute reported just a few weeks ago that many of the world's biggest companies continue to fail in meeting their own targets on tackling climate change, and are guilty of routinely exaggerating or misreporting their progress. Amazon Google and Ikea are given low rankings for their integrity in tackling climate issues and Nestle has been given a very low integrity ranking. However, the report noted the increasing diffculty in distinguishing “between real climate leadership and unsubstantiated”. Nestle and Amazon pushed back strongly against the report’s findings, making it diffcult for investors to know who to believe. The report’s author explained that “[c]ompanies' ambitious-sounding headline claims all too often lack real substance. Even companies that are doing relatively well ‘exaggerate’ their actions.”

Companies like Ryanair have been censored by regulators on multiple occasions for producing misleading advertising. The BBC published a list of: “Seven ways to spot businesses engaged in climate change greenwashing including false claims or vague language, images of nature or ‘green’ buzzwords, and carbon off-setting”.

The screening framework historically adopted by Quakers was more successful, largely because it reflected the core views of those performing the screening. For modern day ESG screening to succeed, a similar level of integrity is needed; investors and business owners or operators need to be convinced of the benefits of ESG before it can be meaningfully adopted.

While Unilever also achieved a “very low” integrity rating, a corporate spokesperson said, “We welcome external analysis of our progress and have begun a productive dialogue with the New Climate Institute.”

MBMG Investment Advisory was one of 102 signatories to a letter to Andrew Bailey, upon his appointment as Bank of England Governor, calling for the government to “lead the way on climate change.” MBMG IA also provides ESG reports as part of its fee-based services for clients.

Paul Gambles

Paul Gambles

GGI member firm
MBMG Group
Auditing & Accounting, Tax, Law Firm Services, Advisory, Corporate Finance
Bangkok, Thailand
T: +66 2 665 2536
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MBMG Group was founded in Asia in 1996 and has since grown steadily. It offers services ranging from investment advisory, corporate advisory, tax advisory, family office, accounting and audit, legal, insurance, estate planning, and property solutions.

Paul Gambles is co-founder and Managing Partner. He is licensed by the Thai SEC as both a securities fundamental investment analyst and an investment planner. Paul is also well-known as an expert commentator, appearing regularly on Bloomberg TV, CNBC, and Channel News Asia. He also writes the weekly newsletter MBMG Markets Flash, regular updates, and articles.

Published: GGI Insider, No. 119, May 2022 l Photo: yalcinsonat -


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