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ESG Data: Woke Capitalism or Better Due Diligence?

At Gitterman Asset Management, we refer to ESG as the GPS of Investing®.  Just as we historically used fold out maps when we would take a road trip, we now have GPS systems, which update constantly and include numerous additional data sets to make our trips smoother, easier, and quicker.  We now know more about road closures, traffic, and any of the other real-time issues and situations that might hinder our trip than ever before.

To us, ESG is the same thing.  Just as most financial professionals primarily used traditional financial metrics to evaluate companies, we now have access to a nearly unlimited amount of non-financial, but material, data sets to help with our investment decisions.

ESG data sets are simply that—data sets.  This information does not tell us what to buy or sell.  It is simply additional information.  And while environmental, social, and governance, or ESG, may not be the best name for this data, political attacks on ESG as “woke” investing come from a misunderstanding of what it actually is.  We don’t know of anyone driving around today complaining that GPS is “woke” driving, do you?

ESG data is not thematic or values-driven, and this needs to be made clear.  It is simply additional due diligence about the companies we are looking to invest in.  It has nothing to do with stock selection around sectors or themes, and it will not disappear, because no asset manager is going back on utilizing this data once they have started.  They might stop talking about it, or referring to is as ESG, but they are not going to stop using the data itself.

What has to be made clear to the general public is that questions about values and not wanting to own things like tobacco, guns, or fossil fuels, etc. are irrelevant to ESG.  They are two different lines on the highway that do not meet.  Now, could we use ESG data to evaluate companies within a theme?  Absolutely, but ESG data does not tell us what themes to pick.

The current and increasing political attacks on ESG are largely driven by the fossil fuel lobby as a well-orchestrated attack against the divestment from fossil fuels.  Yet ESG has nothing to do with this, and the best thing our industry can do is to keep bringing this point home.  If someone wants to attack divestment funds and say they are anti-trust, etc., then the focus of the conversation should be on divestment from fossil fuels as the elephant in the room and the argument.  ESG data, by nature, does not say anything about owning or not owning fossil fuels, and it doesn’t tell us what to divest from.  We can also get full ESG data sets on fossil fuel companies, and this data can be used to help us pick the best-in-class of these companies to invest in.

The fossil fuel industry is a part of nearly every product we use today.  Our clothes, headphones, iPhones, microphones, and the Blistex that we put on all have petroleum in it.  We can’t just stop producing petroleum tomorrow and have a livable world.

As far as companies go, we think a great example to look at is Kayne Anderson, a 30-year-old fossil fuel company that has more recently shifted to including big investments in renewal energy and infrastructure.  Here is a company that’s not saying one type of energy is good and one is bad.  They are saying that investing in renewable energy makes sense, or they wouldn’t be doing it.  It’s profitable.  It’s cheaper.  So, they have diversified.  Here is a company that is investing in both types of energy well, and it changes the dialogue a lot.

Bipartisan discussions are what we need now to reduce emissions in a way that does not leave people behind and makes sense for everyone. Reducing ESG data sets to ideological arguments does little to make any of us better investors.  Our planet is more fragile than we once thought it to be.  Navigating a way forward with data, like a GPS system, may help us find a way home faster.


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