Esa's Notebook

At the bank, my investments were now viewed from the perspective of responsibility. A graph describing the level of responsibility of my investments had appeared on my profile: My responsibility was 62 %, while the bank’s recommendation is 80-100 %. I felt a little humiliated and guilty.

I am not a professional investor. I have been investing for over ten years, the last 5 years actively. I have considered temporal, spatial and industry diversification to be the most important guideline for investing. I was wrong about that. The most important is responsibility. In the opinion of the bank.

ESG became part of the mechanisms of the market economy in 2004, when it was launched as a joint statement by the UN and several large corporations. The aim of this was to find ways to integrate ESG into capital markets. This principle is integrated, among other things,  in EU taxonomy, which provides guidance for the markets of the member states. EU regulation is increasing, and now ESG reporting is mandatory for all companies with more than 250 employees. The EU taxonomy lists environmentally sustainable economic activities, and companies’ reporting obligation expands not only to financial information but also to what companies do in relation to environmental responsibility. Environmental crimes weaken a company’s level of responsibility and weaken its competitive position.

Banks now advertise responsible investments, for example ESG funds in their portfioli. There are companies from which you can buy sustainability reporting.

Responsible investing sounds great. However, there are a number of problems.

The credibility of corporate responsibility can be difficult to verify when the criteria for responsibility can be arbitrary. It is difficult to find uniform criteria, because transparency at such abstract levels can be poor, as opposed to key figures of the company’s accounting.

ESG can also be so-called greenwashing, in which case e.g. only a change in the name of a company or fund to ecologically more “appealing” can give the impression of good ecological profile of the company.

It can also be difficult for an investor to understand how improving gender equality by increasing the number of women on company boards affects the company’s success.

Thus, ESG requirements were not originally market-driven, but they have become new corporate “advertising slogans” in the hope of gaining advantages over competitors. ESG requirements are standards imposed from outside to guide markets and investors, and they have gradually become like a socialist agenda guiding Western markets.  ESG requirements tend to guide investors as if investors could not decide for themselves whether to invest, for example, oil companies or the weapon industry or not.

Investors are not stupid. ESG can turn against itself as investors gradually grow tired of outside maneuvering. Such maneuvering has never worked in a healthy market. Socialist economic systems have demonstrated this a long time ago.