Full text of John Fullerton’s speech about what is ESG Investing at Big Think.
The idea of ESG in investing, which stands for environmental social and governance, has been around probably for twenty years now.
It sort of followed the SRI movements (socially responsible investing). And this was our attempt to think beyond shareholder value and what other values mattered to the health of a corporation in the long run.
E – Environmental: the company’s environmental performance and behavior.
S- Social: it’s the way it treats its employees, the way it treats its consumers, it’s the way it behaves in its community, healthcare benefits that gives, that kind of things.
G- Governance, is the company well governed or not well governed.
And there’s a sort of common sense recognition that those attributes and those values are also important. It’s not just shareholder value, it’s a broader set of values. And there’s been probably billions of dollars invested in measuring and disclosing ESG factors by public corporations. And of course more disclosure about these issues is definitely good.
You know the old saying, ‘light sunshine is the best disinfectant’. So, if companies are required to report on these things they’re going to manage them and that’ll be a positive outcome.
What that whole idea though failed to address is the thing I talked about earlier, which is that public companies that operate in public capital markets. Whether they disclose everything perfectly or not, are sitting in a system where they’ve been separated the relationship between their true owners, has been separated by the capital markets or disintermediated by the capital markets. And their engagement with their direct owners, maybe, once a year at the annual meeting in a proxy vote.
But in a in a private company for example, the owners of the company are on the boards of directors, their wealth is tied up in the company, and they pay very close attention to the company.
So I do argue that we’ll never solve the unsustainability crisis in business simply through more transparency, ESG and otherwise. We need to use that data to manage businesses but we also need to reconnect them fundamentally with the owners of enterprise.
And the thing about their principles of living systems is that they’re not kind of a menu you can pick and choose from. Healthy living systems operate in accordance with all of them, all at the same time or a system gets sick and dies.
You know you get cancer when at a cellular level you’re not communicating effectively. So ESG can be all well and good but if we don’t also deal with the right relationship point, it goes for naught.
And I wouldn’t it all suggests that the work in the ESG movement over the last 20 years has not been beneficial, but it certainly you know the even the most adamant champions of it have acknowledged that it hasn’t achieved the outcomes that they’d hoped. And it’s interesting that I now often get invited to an ESG conference because people in the ESG community recognize that there must be something more to it than the work that they’re working on.
and I used to say well you sure they’re ready for my message because it’s not consistent with their worldview and that’s now no longer a concern people are hungry for fresh ways to think about things. So that’s progress.
– John Fullerton