In an article and video interview produced by Top1000funds, “Bridgewater’s Carsten Stendevad and PGGM’s Jaap van Dam discuss the need for more clarity and better communication in sustainability and explore how investing for impact is re-shaping investment strategies.”
I could not disagree more.
First, the finance community has actually done an impressive job of communicating the need to reinvent itself around investing with environmental morals in mind. Based on the U.N.’s Sustainable Development Goals, asset owners now pepper their investment products with a-la-carte ESG compliance, even retroactively padding themselves on the back.
Second, made abundantly clear from the conversation with Carsten and Jaap is that ESG is a consequence, not a cause of newfound investment strategies. In gastronomy, ESG is akin to a sauce you put over a meal to make it taste better.
Therefore, ESG cannot be called a strategy, let alone become the righteous method of reshaping the investment world.
If not for the perilous humanitarian consequences of deploying the wrong vectors for humanity, it is almost hilarious to hear Bridewater’s Carsten Stendevad talk about three-dimensional portfolios. Risk and return axes are now supplemented by ESG etiquette, the three movable vectors of new-age investing, with enormous thesis-drift to boot.
Suspend the major fallacies innate to ESG I have pounded on for so long. The world, as Einstein discovered one hundred years ago, in actuality revolves around four dimensions. Assuming the axes are correct (they are not), investment allocation strategies fall one crucial dimension short of tracing human capacity and ingenuity.
Indeed, asset managers trying to understand how the real world works is like a five-year-old child taking apart a combustion engine and figuring out how it creates torque. They need education or replacement, investing in humanity is not kids’ play.
Slave To Love
Of course, it sounds great to say you are an asset owner rather than an asset allocator. Still, the impetus for responsible investing comes from the people, the public, who actually are the causal origination, spawn renewal, and must ultimately yield returns from the investment funds.
And as the public wants more responsible investing, the pressure on Bridgewater and PGGM increases to come up with evidence they comply. The lazy fuzzy logic they submitted proves the greater-fools they are, leading society to re-up their faith in these firms.
Hugging the benchmark index, as described in the above quote, has been supplemented by hugging ESG. Whatever society, egged on by the ignorance of the United Nations, believes it means.
Back To Earth
ESG violates nature’s first-principles. For sustainability does not exist anywhere in the universe. In fact, nature’s asymmetry of entropy dictates that energy availability is irreversibly declining, forcing us to deploy renewable, not sustainable investment strategies—different strategies derived from different first-principles.
The difference between renewal and sustainability is as important as understanding the difference between cause and consequence. Renewal is the cause of temporal proxies of sustainability as its consequence.
The confounding of consequence with cause, in the words of Nietzsche, yields the depravity of reason you witness in the interview, where both asset owners hopelessly attempt to infer the promise of repeatable investment returns from ESG.
Re-educate Asset Owners
Nature’s steadfast principles that have already determined the outlook for humanity and our planet for some 4.5 billion years and our universe, consisting of 400 billion galaxies, each with 100 billion stars like our sun, for 13.71 billion years. Proven and repeatable are the words that must sound like music to the ears of investment professionals.
Only when the arbitrage of human expansion, driven by finance, is guided by nature’s first-principles can we expect the returns from nature’s alpha to consistently improve the excellence and longevity of the human species.