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via Real Climate Science
January 11, 2023 at 03:36PM
Rupert Darwall writes at Real Clear Energy 2022: The Year ESG Fell to Earth. Excerpts in italics with my bolds and added images. H/T Tyler Durden
The year 2022 brings an end to an era of illusions: a year that saw the end of the post–Cold War era and the return of geopolitics; the first energy crisis of the enforced energy transition to net zero; and the year that brought environmental, social, and governance (ESG) investing down to earth with a thump—for the year to date, BlackRock’s ESG Screened S&P 500 ETF lost 22.2% of its value, and the S&P 500 Energy Sector Index rose 54.0%. The three are linked. By restricting investment in production of oil and gas by Western producers, ESG increases the market power of non-Western producers, thereby enabling Putin’s weaponization of energy supplies. Net zero—the holy grail of ESG—has turned out to be Russia’s most potent ally. [Note: GOP House members are now advised to refer to Wind and Solar as “Not Green, Not Clean, and Empowering to China and Russia.”]
It wasn’t only a bad year for ESG on the stock market. Earlier this month, Vanguard announced that it was quitting Glasgow Financial Alliance for Net Zero (NZAM), set up by former governor of the Bank of England Mark Carney a little over a year ago. “We have decided to withdraw from NZAM so that we can provide the clarity our investors desire about the role of index funds and about how we think about material risks, including climate-related risks,” the world’s second-largest asset manager said.
Two months ago, Alex Edmans, coauthor of the latest edition of the standard textbook on the principles of corporate finance and professor of finance at the London Business School, published a paper titled “The End of ESG”—without a question mark. Edmans criticizes what has become the primary justification for ESG: the claim that business can generate higher returns for investors by tackling climate change. Since governments are democratically elected by a country’s citizens, they are best placed to address externalities, whereas investors disproportionately represent the elites. “If ESG is pursued for its externalities, companies and investors should be very clear that it may be at the expense of value,” Edmans says.
October also saw the publication of Terrence Keeley’s Sustainable, where the former BlackRock senior executive penned what amounts to a requiem for ESG. Rather than “doing well by doing good,” the logic of Keeley’s case, as I reviewed for RealClear Books, is that investors in conventional ESG investment products are likely to end up not doing very well and leave investors feeling good, not doing good.
It has not all been going one way. In May, HSBC terminated Stuart Kirk, its global head of research at HSBC’s asset-management arm, for voicing some hard truths about ESG. Earlier this month, HSBC announced that it will stop financing new oil and gas fields, putting the West’s third-largest bank on Putin’s side in Russia’s energy war on the West.
What is now a negative factor disadvantaging the West in a world increasingly characterized by East–West geopolitical tensions originated after a period when the United Nations had been fostering a horizontal global division between a rich North and an exploited South. As University of Pennsylvania’s professor Elizabeth Pollman records in her June 2022 paper “The Origins and Consequences of the ESG Moniker,” through the 1970s and early 1980s, the UN promoted the New International Economic Order that called for the regulation of transnational corporations on the alleged grounds that they were widening the gap between developed and developing countries.
The 2008 financial crisis subsequently turbocharged the uptake of ESG. Having caused the financial crisis, Wall Street was going to redeem itself by saving the world from a planetary catastrophe. Without climate change, ESG would have vastly less salience. Although marketed as a climate risk analysis tool, ESG is no such thing.
In reality, it’s about investors and debt providers driving the decarbonization
of Western companies and sunsetting its oil and gas companies.
According to ESG doctrine, there are two types of climate financial risk—physical risk and transition risk—and it’s straightforward to demonstrate that both are spurious. Take the Bank of England. For its climate stress tests, the Bank of England uses a scenario derived from the Intergovernmental Panel on Climate Change’s (IPCC) extreme and physically implausible RCP8.5 climate scenario. Roger Pielke, Jr., professor of environmental studies at the University of Colorado–Boulder, and Justin Ritchie have documented how use of the RCP8.5 scenario represents “a stubborn commitment to error,” with its absurd projection of a sixfold growth in per-capita coal consumption to 2100, based on erroneous reports in the late 1980s of virtually unlimited coal deposits in Siberia and China. The Bank of England compounds implausibility with impossibility by taking the RCP8.5 pathway of 4 degrees by the turn of the century and telescoping it into a 3.3-degree Celsius rise by 2050.
Central banks resorting to these types of games constitutes strong evidence that
climate physical risk is a nonissue for financial stability.
Similarly, climate transition risk and the stranded assets trope defy economic and financial logic. If you restrict the flow of capital into a sector producing stuff that people want and are willing to pay for, the price of the output of a capital-embargoed sector will rise, as will the value of its invested capital. This, in essence, is what has been happening in energy and capital markets over the past year and explains why ESG as an investment strategy does not work. In the absence of draconian government policies to suppress demand for oil and natural gas, ESG policies strangling the supply of capital to Western oil and gas producers have two effects: they push up the price of hydrocarbons; and they displace supply from Western producers to neutral or hostile ones, with major detriment to the economies and security interests of the West.
Although the disintegration of ESG as an investment strategy became unmistakable in 2022, its existence as a political doctrine will continue until it is challenged and defeated politically.
This is already happening in Red states such as Florida, Texas, West Virginia, and Utah. It also requires concerted leadership at a national level to get central bankers and financial regulators to quit playing covert climate policy and to shame banks such as HSBC into switching their support from Russia in the energy wars by dropping their anti–oil and gas financing policies. Defeating ESG not a case of “who cares wins” but “who fights wins.”
See Also
ESG Funds Buy Russian Over Canadian Oil
via Science Matters
January 11, 2023 at 02:37PM
Towards the end of October there was a titanic football clash, not between international teams ahead of the World Cup, but on my lawn : a contest between my one-year old Scottie Dog (= Scout) and yours truly. Scout has an ability to block my superb passing shots, so more and more effect had to be exerted to achieve dominance. I was determined to get my my own way and so kicked the ball as hard as I could, trying distraction techniques at the same time. Next moment I was horizontal in the air and crashed to the ground. An unmitigated canine foul.
I found I couldn’t move and eventually was carted off to hospital where an X-ray revealed I had broken the head of my femur within my hipbone. (On the World Cup final match I saw the Argentinian Messi taking an exact same fall – not involving a Scottie dog but some rude Frenchman – and he got up with nary a scratch).
Eventually I was moved to a 7-bed ward (originally 6 bed ward, but you know how things are in the NHS now) of over-70 years old men, all of us apparently waiting for beds to be made available in small local hospitals where our recovery could be aided by more concentrated physiotherapist care. So we were bed-blockers of the first cru. Some of the inhabitants had been waiting months, with no prospect of release. I joined the clan of the damned. I therefore determined to exercise my mind by discovering the degree to which climate change had infiltrated that tiny bit of the NHS. I asked my companions what they knew about climate change, and apart from from some vituperous comments expressed without thought, they had nothing to contribute. Of the 15 non-dementia patients who occupied the ward while I was there, all but two were loud-mouthed misogynists shouting their displeasure at young nurses and nurse assistants trying to do their best for their patients.
This second grouping ranged from senior nurses to the most junior of nurse assistants. They didn’t want to discuss climate change either (other than my history teaching at the university). To be honest, I don’t think they had much time to discuss anything other than what they were doing. At times they were literally worked off their feet or having to concentrate so hard on what they were doing. “She who must be listened to” on one visit commented that I was experiencing the best and the worst of humanity in that ward.
Doctors always appeared in pairs or clusters, festooned with stethoscopes (never seen in action). I never got a chance to ask them about climate change but I knew they knew the answers. They had time to speculate.
So during my stay I found no one to make any comment about any aspect of climate change – people were either completely uninterested or much too busy. Were my observations typical of the wider NHS within the hospital? Well, from our ward we could hear the residents of about five other nearby wards (female, younger patients) and there was much resemblance. When being transported for tests in other parts of the hospital it was possible to observe other patients (commonly protesting) or motivated nursing staff. So perhaps my limited exposure was not that atypical.
Since returning home I have thought about these matters more widely. Perhaps many people don’t speak up or even think about climate change and other issues simply because there is little room in their lives for issues that have no immediate impact upon them. They don’t deny its existence but today for them it has little relevance. Essentially they are ignoring it. If this is true, then it is amazing. The amount of information and messaging aimed at them sweeps over them without impact. For those pushing action on climate change this potentially huge grouping of people is considered broadly supportive, but that might not be correct.
My Scottie has learned nothing. Despite my still requiring a metal frame to get around, Scout still brings her battered football for me to get past her formidable defensive skills. I’ll probably wait for the cricket season.
via Climate Scepticism
January 11, 2023 at 01:37PM
If Germany’s Federal Economics Minister Robert Habeck (Green Party) gets his way, prosperity will no longer be defined by GDP and income, but by how many wind parks are built, social inclusiveness, groundwater nitrate content and many other vague social metrics.
Is Germany’s Federal Economics Minister Robert Habeck trying to hide economic woes by redefining “prosperity? Image: Sandro Halank, Wikimedia Commons, CC BY-SA 4.0
Politically this is becoming a hot issue as citizens struggle to make ends meet. If governments don’t act quickly enough to curb this erosion, they may find themselves booted out of office soon.
Yet, many green-leaning government don’t want citizens to see more prosperity because they feel prosperity is precisely what’s ruining the planet in the first place. Somehow green leaders need to convince citizens that worse is better.
Prosperity will soon mean something else
Blackout News here reports precisely how German Federal Economics Minister Robert Habeck, Green Party, plans to do this: by redefining the term “prosperity”.
The problem, in their eyes, isn’t that things are getting worse for Germans, but that the wrong metrics are being used to calculate prosperity. “Growth equals prosperity” no longer applies. In the old days, prosperity was often gauged by GDP, but for the German Greens and Economics Minister Habeck, this will no longer be the case. Prosperity will mean something very different from now on: like how green and inclusive society is.
Hey look! Things getting better for you, really!
Habeck’s new approach to measuring prosperity “includes 34 indicators that are intended to show what the actual state of prosperity in Germany is.” The factors include, for example, “the number of wind turbines”. “the nitrate content in groundwater” or “the average proximity to public transport” reports Blackout News. Maybe you won’t have any money to buy a car, but at least there will be a bus stop half a mile away. And look, now more people have a wind park near the back yard of their energy-efficient tiny apartment!
Already some are arguing that there are other motives behind the government’s new definition: “Is Habeck already preparing us for an economic downturn?” As the economic crisis intensifies, the new definition would allow the government to claim that things aren’t really that bad after all, and that things are in fact better than they appear. And if you complain about it, then it just means you’re a right wing nut who’s a danger to democracy.
Prosperity = how green and socially just
The German federal government’s draft annual economic report states, “Individual and thus overall societal welfare depends on far more than just the economic framework data.” but on whether it is “ecological, social, just, inclusive, innovative and forward-looking”.
The government wants to include indicators that show the extent to which Germany is “on a socially balanced, sustainable, innovative, greenhouse gas-neutral development path.”
“The picture that emerges from the ministry’s data is mixed: Germany is doing well after many years of upswing in the past decade, but prosperity is unevenly distributed, economic momentum is low and energy transition goals are still a long way off,” Blackout News adds.
Meant to prepare us for economic downturn
“That GDP should no longer be a measure of prosperity suggests that the new definition of prosperity is meant to prepare us for an economic downturn. As prosperity declines, so does approval of current policies. To conceal the loss of prosperity, prosperity is then simply redefined,” Blackout News suspects.
Will Habeck and the German government get away with it? Not likely. But if they did, the question would become: For how long? The former Soviet Union and communist East Germany did it for decades, using political brute force. But eventually, like all social engineering experiments, it’ll end all ends failing in a heap socialist excrement, which in turn will serve as rich compost for better ideas.
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via NoTricksZone
January 11, 2023 at 01:12PM
