The dirty truth about ESG

ESG and carbon offsets are a mirage, at best

The news: To stave off worst-case scenarios for increased global warming, we need to simultaneously 1) Decarbonize everything and 2) Find a way to suck a ton of carbon out of the sky.

While both efforts require massive government resources, the private sector would like to use “the markets” to accomplish their part, and let me tell you, that’s going about as well as can be expected considering what is essentially a complete lack of standardization and regulation.

Ever since Larry Fink and BlackRock led the charge into ESG, the inflows have been enormous, mostly thanks to MSCI’s ESG ratings.

The problem, via Bloomberg: MSCI’s “ratings don’t measure a company’s impact on the Earth and society. In fact, they gauge the opposite: the potential impact of the world on the company and its shareholders.” (you should read the entire blockbuster investigation)

TLDR: We’ve been had.

Meanwhile, there isn’t a company or government on Earth that hasn’t pledged “Net-zero by 2050”, and yet, despite and probably because of a frothy two-sided market, there’s no agreed-upon definition of what “net-zero” means, and no one’s regulating the mechanisms to do so.

It’s not a stretch to say the entire thing is bullshit, as by one measure, less than 5% of offsets actually remove carbon from the atmosphere.

Understand it: I don’t want to just come out and say that all of the ESG investing and carbon offsets you or your company have participated in have accomplished nothing, but I’m finding it difficult not to say that?

This, on top of the financial industry‘s massive exposure to fossil fuel infrastructure and real estate that should otherwise be uninsurable.

I believe in the private sector — with little federal support, the Green Vortex has scaled solar and batteries to prices no one could have believed even three years ago. But as with Facebook, the rest of capitalism is clearly not going to supervise itself. Standardization and regulation are imperative, and the clock’s ticking.

⚡️Action Step: Read the “Carbon Bubble” report, which includes an overview of financial system exposures, plus recommendations for regulating capital markets and banks.


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