I explained in a few of my previous articles how ESG, Impact Investing, and Responsible Investing are evolutionary false-positives incapable of producing the repeatability of investment returns they promise. For the simple reason, the theories mentioned above hinge on the evolutionary oxymoron of sustainability.
I would be inclined not to beat a dead horse even further, were it not for the collusion of likeminded financiers who, understandably from how they have been trained, cannot make the proximal-development leap to comprehend the anthropological incompatibility between an investment thesis and humanitarian needs. More than 42% of institutional investors have now hopped on the bandwagon of ESG-style etiquettes.
For them, and short of evaluating every portfolio company on evolutionary integrity, I will break down the critical success factors of the three pillars of the ESG theorem: environment, social, and governance.
The environment we are part of has existed for 4.5 billion years before humanoids entered the playing field. Earth will gradually warm up to unlivable temperatures by the sun and explode or implode in 3.5 billion years. Ninety-nine percent of all living species on earth have already gone extinct, courtesy of nature’s rule.
Clearly, we are not the orchestrator of the environment we like to refer to as ours. Humanity, like all animals, is subjugated to the environment we depend on for survival, not the other way around.
And thus, instead of trying to control nature we must ensure the human footprint is a small as possible, regardless of your opinion on global warming, requiring us to adapt constantly to a dynamic equilibrium upon which our quality of life and longevity on earth depends.
No investment allocation thesis predicated on human supremacy in denial of the laws of nature as implied by ESG can support an evolving equilibrium with nature’s environment upon which humanity depends. Hence, ESG cannot be the theory that determines what humanity can, must, and otherwise will discover.
What humanity wants is not what humanity needs.
As much as people in “developed” countries may resort to sipping their favorite sugar water, popping pills to numb depression, and devour mindless television-shows portraying a life they will never have, none of those types of wants contribute positively to the evolutionary strengthening of humanity — quite the opposite.
Indeed, the democracy we praise in the western world as a must-have, refutes the evolutionary meritocracy already preprogrammed in the human species. Nature, not humanity, defines the merit of our evolutionary excellence.
Hence, what society wants, a lifestyle of the rich and famous is not what humanity needs. Societal needs must be checked against the precepts of nature’s meritocracy to yield the repeatability of investment returns derived from our evolutionary strengthening, integrity, and excellence.
Hence, any reference to social prevalence as part of ESG is a fool’s errand.
Asset managers, in many ways, have the power to make crucial decisions about the exploration and exploitation of human ingenuity and evolution while completely circumventing the stale-mate of politicians stuck wrestling the popularity of social wants in a democracy.
The fallacy of any traditional governance, whether deployed by a democratically elected government or not, is related to the static nature and evolutionary dead-end street from the way we build systems of governance, unable to reinvent itself upstream to continue to trace the dynamic nature of the assets to which governance is applied.
Meaning, soon after seemingly reasonable governance of a marketplace – of any kind – is applied, the composition of participants and their needs change, reducing the efficiency and relevancy of governance the minute legislation is frozen into scripture.
No arbitrage promoting a monism of totalitarian absolutism across all asset allocations can trace and support the dynamic plurality of relativity innate to human ingenuity and capacity.
So, ESG governance fails to secure repeatability for the same reason all current forms of government fail; its inability to dynamically adapt asset allocation arbitrage to the nature and needs of its evolving assets.
To not lose more credibility in finance, we must change the theory of its arbitrage, not with another manmade manacle but, with a theory embedded in a system as closely aligned to nature’s evolutionary principles as possible. We must begin to use human intelligence to build the most adaptable systems of humanity, in compliance with nature.
Asset managers have a tremendous opportunity and responsibility to improve the world we want to see and leave to our children.