In a recent debate, it was suggested perhaps my harsh stance on ESG attached to sustainability may merely be an issue of semantics, inferring it may not matter under what nomenclature or precept the theory of ESG, Impact Investing, and Responsible Investing operate to make their lofty promises of saving the planet.
I would not be wasting my time and energy in writing extensively about ESG if the debate my contention was merely semantic.
Rigor of Discovery
Any thesis of finance must be held to the highest rigor possible, for:
The theory determines what can be discovered. — Albert Einstein
And the theory of finance, as the arbitrage of innovation, ultimately determines what humanity can discover. Much more important than any other process in society, the integrity of the thesis of finance determines the integrity of human evolution.
The thesis of finance is directly responsible for the expanding fractal of human ingenuity, and must, therefore, be taken extremely seriously.
More than anyone, as my large investment in studying the operating-systems of humanity indicates, I want to diminish the footprint humanity leaves behind, and I have spent the last eight years figuring out how to build systems to take better care of ourselves. Our footprint will not diminish with a thesis of finance incompatible with the assets it aims to explore and exploit.
Again: sustainability is an evolutionary oxymoron, and the presumption of anything finite is moronic and scientifically disproven. Anyone with a basic understanding of evolutionary biology, astronomy, or anthropology would realize the evolution of anything revolves around renewal, as in the hydrologic cycle, downstream evolution usurped by less frequent upstream renewal to be more precise.
But since people in finance are generally not the evolutionary biologists-type, their understanding of how the investible assets evolve is poor. Moreover, the structure of finance must follow the nature of the asset, not the other way around.
The human species is a remarkably intelligent species. So much more capable than any other species on earth that we tend to think a little too highly of ourselves.
We use that capability to put ourselves on a pedestal as if to assume humans determine the course of nature, and we use that capability to cunningly suppress others. We invent rules and regulations to maintain our status and supposedly manage ourselves. Never mind we operate in complete ignorance to nature’s rule, trash the resources at our disposal, and then act surprised when nature, in essence, puts the smack down on us.
Few of us realize, as the most intelligent species ever lived on earth, humans will also live the shortest of all major species. About 16,000 times shorter than a bee with a pin-sized brain. The main reason for that is precisely what ails ESG; our intelligence does not contribute to the strengthening of our adaptability in an evolving equilibrium with nature.
ESG portrays to mimic and prescribe what contributes to our evolutionary excellence. It does so with a weak and odd manmade methodology measured by self-aggrandizing peer review wading in evolutionary ignorance, and then creates a financial index by which to measure its performance and determine its future.
Counter that with how the evolution of humanity in actuality is determined by our ability to adapt to nature, thus requiring a thesis of finance subjugated to nature to prolong human existence and excellence.
Nothing in ESG aligns with nature.
When you study the principles of nature, as I have, it becomes clear most manmade systems are woefully inadequate in tracing evolution.
For brevity sake, I will not go into great detail here, I do so in The State of Humanity online and in my masterclasses in person, but as one can see from the manmade systems (in red) like ESG, the principles of nature’s systems (in green) could not be more different.
In short, any totalitarian monism of absolutism (in this case “owned” by MSCI) is by definition incompatible with the dynamic relativity of plurality around which all assets in nature evolve.
Nature evolves around a dynamic relativity theory of renewal, quite the opposite to the projected absolutism of sustainability prescribed by ESG. And as one can see from the chart, the difference between ESG and nature’s systems is quite a bit more substantial than merely semantic.
ESG is unsustainable because its theory, principles, and processes are in vehement denial of, and in conflict with nature’s rule. And as an asset manager, it would be a grandiose mistake to subjugate a 5, 10, 25, and 50-year plan to an asset allocation strategy incompatible with the assets from which the consistency of repeatable returns can be expected.
But it would not be the first or the last time manmade hallucinations negatively influence the evolution of humanity. Join us if you genuinely want to improve the equilibrium with nature upon which humanity depends by – for the first time – building an operating-system of finance compatible with evolution.