Environmental, social and governance (ESG) investment criteria have become excessively bureaucratic, influenced by activists and impose a rigid framework on companies, according to a United Kingdom-based global asset manager.
Aubrey Capital Management director Sharon Bentley-Hamlyn said the concept of ESG investing was gradually moving away from its original intent and had evolved into something fundamentally different.
“What might have been a framework to encourage more ethical investing [has] become a bureaucratic nightmare of box ticking, supported by a ratings industry that has helped large investment management companies greenwash their funds,” Bentley-Hamlyn said.
“It looks now as if ESG is becoming something much worse because it appears to have been hijacked by social and environmental ‘activists’, in addition to the bureaucracy.”
She observed the growing adoption of ESG in the investment community was resulting in increasingly “coercive” regulations, which had restricted individual freedoms and curtailed companies’ capacity to prioritise shareholder interests.
“Investors withdraw or vote against management in annual general meetings because companies are not fulfilling certain social criteria. Corporations start to espouse political ideologies and use their capital to force social outcomes. Companies themselves feel pressured to fulfil certain criteria, even if it is not in their or their shareholders’ economic interest to do so,” she suggested.
“The same goes for climate-related targets. Targets for net zero may appear laudable, but what will be the repercussions for individuals and businesses? Having access to affordable energy is crucial to individuals, as well as corporate and national well-being.
“It is about achieving the right balance and when we start getting ‘diktats’ as to where we can travel [and] what mode of transport we can use, we can be pretty sure we will not achieve the balance most of us seek.”
She advocated for the adoption of a market-driven and adaptable approach to ESG investing as a model to follow going forward, believing such an approach would yield a more sustainable outcome in the long haul.
“We concede that our societies cannot currently function without conventional energy, but we believe that the decision of where to invest should be left to individual investors and not dictated by bureaucrats and pressure groups,” she said.
“The passage of time and the logic of the market will eventually dictate which types of energy we should be using and in a far more balanced way than governments, the bureaucracy or indeed ESG ever can.”
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