The destructive investment “discipline” better known as ESG is too valuable to the political, financial, and economic ecosystem it feeds for its promoters to put it out of investors’ misery. Nevertheless, aware of the criticism and derision that ESG has belatedly attracted, at least some of those who back it have been keeping a lower profile.
However, it has returned to the headlines with the news that MSCI, which among other businesses designs and operates numerous stock indexes (“including more than 1,500 equity and fixed income ESG indexes”), is giving SpaceX its lowest possible ESG rating.
1,500!
These indexes, explains MSCI, “are used by institutional investors for index-based investment products, risk and return analysis, compliance with ESG mandates, and to define an investment universe.”
The ESG ecosystem is what it is.
The Financial Times, with its Moral Money brand and overall ideological stance is, in its own way, a part of the ESG ecosystem, so naturally it turns to a program director at the EDHEC Business School’s Climate Institute for comment on the MSCI rating.
The EDHEC Business School’s Climate Institute?
Yes:
The EDHEC Climate Institute (ECI) supports finance professionals and decision-makers in navigating the challenges of climate change through cutting-edge research and practical tools. Our work focuses on six key areas: Physical Risks, Transition Risks, Resilience & Transition Technologies, Climate Scenarios, Green Assets, and Climate Regulation & Policies.
With a strong track record in climate finance, ECI develops innovative approaches to physical and transition risks, particularly Scope 3 emissions, consumer behavior, and emerging technologies. We also provide independent insights into how climate change impacts asset pricing and investment strategy.
Through close collaboration with academia, industry, and public stakeholders, ECI fosters targeted partnerships to accelerate the transition to a low-emission, climate-resilient economy.
In other words, it too is part of the ESG (and wider green) ecosystem.
Do you see how this works?
Here’s some of what that program director, Frédéric Ducoulombier, told the FT:
In light of the IPO documentation and other publicly available information, “a poor controversies assessment, a very poor governance assessment and a low overall ESG rating should not surprise anyone. . . . This is very close to a governance horror story for public-market investors.”
The same is true, of course, for ESG, which together with its symbiont, stakeholder capitalism, is part of a sustained (and continuing) attack on shareholder rights.
Nevertheless, it’s certainly true that Musk, who four years ago (shortly before S&P dropped Tesla from its principal ESG index) commented that he was “increasingly convinced that corporate ESG is the Devil Incarnate,” runs companies in a way that would have raised questions about “governance” long before ESG (it’s the “G” in ESG). ESG twisted a respectable concept almost out of recognition, but its original meaning can be detected in this passage from the FT’s report:
Since SpaceX filed for its IPO, concerns have been raised over its share structure and limiting of shareholder rights, the concentration of control among insiders, potential conflicts of interest and a lack of board independence and remuneration oversight.
Musk is what he is, too. Investors know that.
The FT:
Such worries have led to debate among European asset managers as to whether Musk’s company meets the continent’s flagship sustainability disclosure rules, which could limit the access of funds managing more than €6.5tn to SpaceX.
In 2000 the EU accidentally came up with what deserves to be a punchline for the ages when it declared that it would “become the most competitive and dynamic knowledge-based economy in the world” by 2010. Its failure to meet that target by 2010 or, indeed, 2026 remains a complete mystery.
The CCC ESG rating awarded to SpaceX by MSCI matches, the FT notes, the grade given to the Russian state after its full-scale invasion of Ukraine in 2022.
That Russia was only then downgraded to that level says a great deal about ESG, none of it good.