So let's talk about the downside right. There was a robust growth in ESG investing. However what defines that for quite
some time now this year we're seeing a trail off. Why is that. I think there are a number of factors in that. One big part of it
is simply that until now you've been able to have your cake and eat it because ESG investing is actually generally outperformed
non ESG investing. That's because the oil price has been low and there's been great excitement in having putting money into clean
energy stocks. Once you have an oil price rocketing higher you begin to have to make some more painful decisions about whether
you're really going to make whether you're really prepared to full seek money to do ESG. So that's one major part of it. Then
there is a broader sense of a reckoning with the attempts to make capitalism kinder. You know we had a decade or so of people
blaming the Milton Friedman idea of shareholder value that the only legitimate reason the only legitimate purpose for company
managers was to maximize shareholder returns. And that's seen as part of how we've had this very sluggish and hollowed out
economy while the stock market is has risen. Now that ESG has got as big as it has.
People are beginning to ask is this working. Either is this actually slanting playing fields in which we don't when we say
we don't want another question we say is is it working is what it is because different people define it very differently now.
Think it's just responsible investing. Yes. It's developed over the years like the 30 odd years ago. It was ethical investing
and it was generally particularly religious groups excluding things they really didn't like most obviously alcohol and even
30 years ago carbon carbon fuels. Then it moved on to being S.R. ISE socially responsible investing
which made more of an attempt to positively find you know quote unquote good companies to invest in an ESG is much more of an
attempt to industrialize the whole process. But is it a way to make more money or a way to do more good or do a little of both.
And in doing that do do neither. Well I think Milton Friedman probably might accept ESG funds because it has made a lot of
money so far for the people offering the funds. There is there is research although it's interesting that it's
always the same few pieces of research that get cited that shows that investing in companies that show up well on ESG indexes
does actually pay. And there would be good reason for that. If you if you if you're socially responsible if you have good
governance if you're ahead of the curve on the energy transition you probably will do a bit better in the long run.
So there are ways in which it has made money over time. I think the question becomes if you
ever have to choose between making money and doing something good.
It's very hard to imagine that you could possibly know there will always be money for example in tobacco and
alcohol. And to some extent if you exclude investing in those you make it cheaper for everyone else. The one thing that seems
to be working really well for ESG is as a marketing device as a label as it were. At the same time the more you choose for that
the more it can be cynical and in fact you can get sick doing what you think you're doing. How do we sought to separate out
those who are just claiming it from those who are doing well. That's. That is one of the reasons we've got the degree of
skepticism of a good degree of backlash at the moment. You've seen the head of D.W. s very big fund manager fall on his sword
after you know there was a whistleblower pointing out that they were greenwashing i.e. that they really weren't trying anything
like this. Hard to ensure that the companies they were investing in were were doing green things as they as they said it.
The FCC is looking into rules on on naming conventions and so on. This happens for the rest of
the industry. There may be certain much more difficult barriers you need to cross before you can say this is ESG or
environmental or ethical. So that is a big concern. And one of the things that I find
Trudy's ridiculous actually about about the ESG concept is if you look at there are different indexing groups producing
different ESG ratings. And you think it's a very big difficult exercise and they charge money for it. If you want to use it to
be an index but the correlation between the different ratings groups when it comes particularly to governance is almost
literally zero. Like if someone if one company gets a perfect score from MSCI that tells you nothing about how good a score it
will get from S&P and so on. Well one thing that I don't understand is if we do have the government be the environmental
police the ESG police. Do you think it's going to work. Yes I think I can understand how they could. Police reporting on
carbon. Yes that seems quantifiable. Yes. We want the government deciding what socially responsible or what is good in terms of
governance by the way. Wouldn't it change from government to government if it wasn't rejected the right of the left. Yes it
would. I do think that's a very good point. I think environmental it's a very complicated issue about how we manage
the transition. If you try to put too much investing into clean energy before it's ready you get the issues of Europe and in
particular if suddenly becoming that much more reliance on natural gas.
But yes it's the task of quantifying is much more straightforward. When it comes to the E the S and the G may I
think yes they are very much more in the eye of the beholder. And it's much harder to justify saying that any particular
rating agency or any passive funds group can be in charge of them. One last one here. I have enjoyed covering business and
economics in news because I've always said money doesn't know right from left. Does this make money. You don't make money. Is
this potentially a way for politics to creep its way into investment decisions. Because there's certain Wolk element. Is
that overused word. Yes. Involved in ESG which is not to say it's not very serious. At the same time there is an element of
that. There's a very big elements of it. What is what most worries me
is that the basic technology now exists for targeting something you don't like and punishing it in some way by the markets. You
can. You have an index and then you exclude certain things from it on certain criteria and to complete that game. One classic
example which has bipartisan support but I think it could be the start of a dangerous principle is there's a government thrift
pension plan which is under bipartisan pressure of Marco Rubio leading it. Maggie Hassan Democrat from New Hampshire saying
that they mustn't invest in China because it's a national security threat and that can easily become habit forming.
You see Japan pension funds started investing much more outside Japan to help weaken the yen when there was a desire for them to
do that and so on that this could become now that it's been now that we understand how to do ESG investing CAC could become
weaponized and could become quite a dangerous elements in the unpicking of globalization.