This is a lead in to a YouTube video (linked below), titled "The Theocratic Trifecta: The Allure and False Promise of ESG, Sustainability and Stakeholder Wealth Maximization, and it is a video that I expect most of you not to watch, for many reasons. First, it is insanely long (more than 3 hours), breaking almost every rule in the online video rulebook. Second, everything that I say in this video, I have said before either in my classes or individual posts. Third, you may find my tone off putting, and it is definitely not academic (on the one hand, on the other hand type of stuff), but it reflects my views.
That said, you may still find it useful because it consolidates all the arguments against three ideas that I have seen marketed relentlessly as counters to conventional business first principles, and shows how these concepts connect to each other.
- Sustainability: It is the business buzzword of the moment, with sustainable centers funded around the idea and classes with it in the title. While I understand the push for sustainable living and a sustainable planet, I am mystified by the notion of corporate sustainability, since corporations are legal entities that should go away, when their reason for existence disappears.
- Stakeholder Wealth Maximization: Should a well run business consider the needs and interests of the many stakeholders in it (lenders, employees, customers, society)? Of course, but the idea that you can maximize all of their competing interests is an idea that only a law school professor will think is a good one.
- ESG: No business acronym has ever acquired as large a following as this one, and I have written and talked about the multiple ways in which it can go wrong. My description of ESG as a concept born in sanctimony, nurtured in hypocrisy and sold with sophistry summarizes how I feel about it.
I use "Theocratic" as a word to bind these bad ideas together because they have marketed with religious fervor, and the Ayatollahs of the space have used virtue (or their definitions of it) as a defense against arguments. The buy in by consultants (McKinsey, are you listening), academics (who have provided cover and manufactured research to back it up), fund managers (with fiduciary responsibilities) has been astonishing. If you are an ESG advocate, or worse still, actually work in the space, I hope that you do get a chance to watch the session. It may infuriate you, and you may disagree with my arguments, but I don't think you will find it boring.
The slides for the YouTube video are here:
These are links to my previous blog posts on the topics:
Director of Finance | ex-VC at DSG/Everstone | INSEAD MBA
2 年“Every great cause starts off as a movement, morphs into a business, and ends up as a racket.” That’s ESG, professor
CFO / Board Member – Telecommunications and Digital Infrastructure / BBUG Alumni
2 年https://www.prnewswire.com/news-releases/esg-and-stakeholder-capitalism-are-changing-corporate-boards-301745299.html
Global Finance and Risk Professional
2 年Professor Damodaran’s latest takedown of ESG is worth the three hours. The first hour or so is a review of corporate finance first principles, the next 45 minutes examines why concepts of sustainability and stakeholder wealth are alien to the first principles, and the remainder addresses the many dubious assertions associated with notions of ESG. Professor Damodaran closes with a note of hope, “ESG will pass on, because these concepts will hit the limits of their emptiness.”
Senior Advisor @ BDA Partners | MBA
2 年Landmarks of Investments and Finance Available online at amazon
Senior Financial Executive with an extensive managerial experience and proven track record in Commercial Banking, Asset / Wealth Management, Financial Advisory, Investment Banking and Insurance Industry
2 年Thanks, Aswath, I could not agree more with your analysis. Last month I published an article critisizing an ESG principle in practice, your critisism of course adds another empirical dimensions and insights. The fact is that ESG is becoming a big business, but asset managers and agencies, measuring the "ESG footprint" will be the only beneficiares - at the expense of... An ideal, which can not be even measured properly, can lead to a net negative value. ESG and communism are brothers in this respect.