the times | Thursday February 3 2022 27
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Buy prints or signed copies of Times cartoons from our Print Gallery at timescartoons.co.uk or call 020 7711 7826When bosses discover ethics, we all suffer
Anyone with money in shares or a pension fund risks losing out as companies rush to disinvest from ‘nasty’ businesses
Successful companies have always
managed to combine profitability with
social obligation and sometimes
paternalism. It’s a question of balance.
There is little balance now.
Ominously, governments and
regulators have seen the ESG
bandwagon and they like it. There is
scope for endless interference and
bossing about.
In the last few months, a few brave
souls have spoken out about what is
going on. The veteran investor Terry
Smith is fighting Unilever, accusing it
of putting political showboating
before the interests of shareholders,
who own the company or are
supposed to. Rupert Soames, the
chief executive of Serco, issued a
warning in December in The Times.
British defence firms say privately
that part of the reason they are
vulnerable to being bought out is the
burden of ESG obligations
suppressing their value.
On Wall Street, there’s a vigorous
debate running about whether the
fashion is turning into a scam. Even
some of those who have advocated it
are concerned that the terminology
is misleading.
We have ended up with an over-
correction, a 180-degree turn from
the Friedman profit-at-all-costs
analysis. Without a rebalancing, in
favour of the profit that pays our
pensions and future investment, this
will cost us dear.that it inflates the price of green
assets, risking a bubble. Worse, it is
untested in a crisis of the kind we are
entering. After a long period in
Europe where we thought the
potential for war and energy crises
had disappeared, they’re back.
Gas, a lot of it, is still needed, even
as the transition to a distant, green
utopia continues. And so are nuclear
energy and commodities. Theactivities of the Kremlin show us
weapons and defence companies are
needed too, to deter aggression and
defend free societies against attack.
This is not to dismiss the concept
of investment having a subjective
ethical component. There is a long-
running debate about the true
obligations of business and after the
financial crisis there was a hunger
for a less selfish approach.
The pro-market economist Milton
Friedman famously set the
buccaneering tone in 1970 when he
said the business of business is
business: the main or even sole
obligation is to make a profit.
Although his statement has been
misrepresented, it was a rather crude
description of the commercial process.the planet, going green and being
diverse in their employment
practices. This is also what young
consumers want, we’re told.
In addition, the chief executive of
an ESG-friendly bank or large
company has the gratifying
experience of going to conferences
such as Cop26 and being fêted as an
equal of elected leaders, starring
alongside environmental
campaigners. On stage the
campaigners will say the corporates
are not doing enough, but
nonetheless they get praise for
heading in the right green direction.
Sitting alongside them the virtuous
corporate leader nods and looks nice.
Everyone is a winner. Or are they?
The economic activities deemed
nasty don’t disappear when virtue-
signalling investment funds refuse to
touch them. They are bought up and
go private. Profits then flow to a
smaller group of the already wealthy,
rather than being distributed to
millions of people through pension
and investment funds.
This is accelerating a trend charted
by the financial commentator
Merryn Somerset Webb in her new
book Share Power. She says we small
investors should assert ourselves,
using our voting rights and pressing
firms to prioritise being a
commercial success within the law.
My main concern with a lot of the
naive ESG-style thinking is not onlyI
t is obvious why the fashion for
more ethical investment took off
in the aftermath of the financial
crisis. In 2008 bankers, and big
business by association, were cast
as the greedy villains. Only a
sociopath enjoys being the baddie.
Most ambitious chief executives seek
validation and respect, as well as
wealth. The financial and business
elite needed something with which
to rebuild their collective reputation
and indicate virtue.
Enter the ESG movement. In the
last decade it has come to dominate
the corporate landscape in the
advanced economies. In Britain,
adherence to environmental, social
and governance (ESG) principles and
concern about climate change have
become a big business obsession.
ESG is shorthand for being ethical
and sustainable, and disinvesting in
anything perceived to be nasty or not
nice, be it carbon, mining for
commodities or manufacturing
weapons. Companies have
reorganised themselves so that
everything they do passes the ESG
test. This is not a matter of arcane
technicalities. If you have a pension,
savings held in funds, or shares in
individual companies, then the way
money is invested affects you. If the
ESG consensus, challenged so far only
by a few investors and bosses, turns
out to be mistaken and the new way of
viewing the world and investing goes
wrong, it is likely we’ll all be poorer.
Speak to some senior executives
and board members, scared of being
quoted, and they’ll say it takes up a
bewildering amount of corporate
time. The worry is that it gets in the
way of paying attention to the core
business of selling to customers to
generate a profit and fuel prosperity.
In the past decade, trillions have
flowed into funds and firms stampedwith the somewhat vague ESG seal
of approval. At BlackRock, the
world’s largest asset manager, the
boss, Larry Fink, has made great play
of its purity and green credentials.
Investors and institutions love the
story. In the year to March 2021,
$527 billion flowed in to BlackRock.
In this market, investors and
companies make themselves
attractive by proving they are savingWe still need gas, a lot
of it, and weapons to
defend free societies
Iain
Martin@iainmartin1
Milton Friedman said
that the business of
business is business