While I think everyone can appreciate the aspirations of Environmental, Social, and Governance initiatives the idea that these concepts will be consistently grasp by the diverse audience of stakeholders is unreasonable. Measuring and ranking disparate organizations among disparate industries is a fantasy that eventually everyone recognizes once they try to operationalize it. It has become today's version of a beauty contest. While some dimensions can be measured. Aggregating the assessments into a legitimately universally accepted ranking is ultimately indefensible. Beauty is in the eye of the beholder.
Bankers know this better than most people as we seek to professionally underwrite credit risks. We take the challenge of underwriting the parameters that impact probability of loss and loss given default seriously. I think the industry does it pretty well. But, that doesn't mean that are systems are without critique and the science and art of this effort has existed for centuries. ESG is so much broader, unquantifiable, and ambiguous than credit risk underwriting. The idea that we will get on the same page in a quantitative manner on this topic in short order is unrealistic.
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Neil Stanley
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Original Message:
Sent: 06-20-2022 15:55
From: Barb Rehm
Subject: Tuesday Topic: ESG on the Ropes?
Hi, everyone. Barb here! I'll be filling in for Rob the next two weeks while he's on vacation. It's great to be back, even temporarily.
So, what the heck is going on with ESG? After attracting massive sums of money over the past few years, investor flows into ESG funds fell 36% in the first quarter of this year-a trend that's continued into Q2, according to Bank of America.
Personally, I've always felt that there's been a disproportionate amount of focus on the "E" part and very little on the "S" and "G," but I don't think that's the issue here. More likely, people are starting to doubt how much good ESG is doing, as the above article suggests. Or maybe they've been turned off by some confusing developments. Regardless of what you may think of Elon Musk, it's hard to ignore the fact that an electric-vehicle company like Tesla got kicked off S&P's sustainability index, while Exxon was allowed to remain. It's also worth noting that Goldman Sachs and Deutsche Bank are facing investigations into their ESG businesses.
What do you think is driving the ESG disillusionment? And are your banks doing anything differently as a result?
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Barb Rehm
Senior Managing Director
IntraFi Network
Arlington VA
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