09 June 2021
Have balance and proportion fallen victim to fashion, over-reaction to events or just the lack of the will to make things simple?
I was listening recently to “A Question of Balance”, the sixth album by the Moody Blues which was released in 1970, the year I was doing my O Levels. It was the band’s attempt to simplify their “lush” sound so that they would be better able to perform their songs in concert.
I’m afraid that the record has not, with the notable exception of “Melancholy Man”, stood the test of time particularly well. But the title, and the band’s pursuit of greater simplicity, got me thinking. Looking around the business world, not to mention the world of politics, there are numerous situations where balance and proportion seem to have fallen victim to fashion, over-reaction to events or just the lack of the will to make things simple.
As Mark Twain said - “I didn’t have time to write you a short letter, so I wrote you a long one”.
Perhaps it has always been this way, but I don’t think so. Let me offer a few examples and see if I can convince you.
It must be axiomatic that companies looking to the long term should, even leaving aside regulatory requirements, address:
But does it help or hinder to badge these three themes as ESG? As Baillie Gifford ask, “Is ESG really a thing?”. For my money the acronym obfuscates rather than elucidates (nearly as much as CHIS in Line of Duty).
Climate change is an externality that will drive fundamental changes in many businesses (take a look at Unilever’s Climate Transition Action Plan for a clearly expressed articulation of the challenges faced by a big multi-national). The “S” is not a response to an externality, that asteroid about to hit, but it is about inclusivity and decency. The “G” is the framework which will facilitate efficient pursuit of the company strategy, management of risk and, indeed, a considered approach to environmental and social issues.
All of these factors go sustainability, and will matter to investors, but to jam them all under an umbrella labelled ESG suggests to me a spurious equivalence - that they’re all kinda sorta the same.
Which brings me on to ESG Ratings. Investor interest in ESG has encouraged a plethora of agencies to provide ratings (for example, MSCI, ISS, Sustainalytics and Refinitiv) but:
This is a well-known problem which is frustrating for corporates and investors alike. The data gathering also places a considerable burden on corporates. I heard a senior executive from a global retailer on a webinar recently say that they completed 600 ESG questionnaires in a year.
How can corporates bring balance to this area? Three suggestions:
I shouldn’t bang on about this (do look at my short critique of the White Paper here https://1drv.ms/b/s!AiNiB_DAS8su8RR7Clfl8La1y19n?e=oBlnsP if you are an enthusiast) but I would highlight three proposals in the White Paper where proportionality has gone out of the window:
The consultation period for the White Paper is open until 8th July if you are moved by these points.
I commend to you an excellent article by Oliver Shah in The Sunday Times on 9 May entitled “Anonymous box-tickers who want to block Soriot’s deserved pay rise”.
The thesis of the article is:
This is a compelling analysis and the Soriot vote is a classic example of a disproportionate result. The influence of ISS and Glass Lewis is simply out of kilter.
Many of us will pick up our iPhone, send a WhatsApp to our kids, look up how to fry an egg on Google, watch a handy 2-minute YouTube video on the subject, order Hamnet (vg by the way) from Amazon and scroll through the Netflix menu to decide what to watch after dinner.
It is staggering to think how the FAANGs (Facebook, Amazon, Apple, Netflix and Google) have permeated so many aspects of our daily lives, scooping up a lot of our data in the process. These five companies, plus Microsoft, represented 23.4% of the S&P 500, by market capitalisation, on 4 June 2021.
The influence held by a small coterie of big tech businesses is strikingly disproportionate.
It affects us (is our data safe, how much is an iPhone?) and it affects other businesses and their ability to compete (BT, BBC Studios, ITV).
As someone who finds misty eyed romance in the fragrance of oil and petrol when climbing out of his old car after a long journey, I am not objective on the subject of electric vehicles.
But I do get it. In the interests of the planet, EVs (and maybe hydrogen vehicles one day) are the way of the future. However, there is a major mismatch between the UK Government’s determination that new sales of petrol and diesel cars must cease by 2030 and the charging infrastructure, the development of which has been left to private providers.
This has resulted in a confusing mix and match array of devices, inconsistent coverage around the country and a huge investment requirement - currently connectors are being installed at a rate of 42 per day when, according to the Society of Motor Manufacturers and Traders, 700 per day are needed to reach the number that will be required in 2030.
How is the Government going to bring the vision of an EV revolution to reality - to make execution capability proportionate to ambition?
With apologies to cardigan fans, I have come through life thus far thinking that a cardigan is not a very exciting item of clothing.
But I find that I have been disproportionate in my view. There is much more excitement in and around the subject of cardigans than I had previously thought.
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15 March 2022
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11 January 2022
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23 August 2021
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