Environmental, Social and Governance (ESG) friendly (Part one)

Dear Ladies and Gentlemen
 
In last week’s part one on ESG investing, I shared some very basic information on ESG investments. Today I would like to point out some of the difficulties one faces when investing in ESG-friendly products. However, the short format of my weekly mail will not allow me to go into the topic very deep, but I am convinced I will make you reflect.
 
Let me start with an interesting and somewhat extreme example. Just imagine you were running a portfolio with an ESG-friendly touch and now just imagine for risk (volatility) reasons you were holding government bonds. No problem you may think, and most investors wouldn’t even think a second about that part of the portfolio. But it strikes me that even though most investment managers who offer ESG-friendly strategies would never invest in a weapons producing company, they are happy to give loans to countries spending enormous amounts of money on weapons of all sorts and sometimes even nuclear devices.
 
Ladies and Gentlemen, by buying government bonds and/or treasuries of the United States of America, Israel, the U.K., China, India, Pakistan, etc. investors are supporting the financing of weapons of mass destruction. The average investor does not think badly about it, I even think the average investor would not think about this at all and yet by buying government bonds and/or treasuries, investors are providing loans to governments, which the respective governments may use to buy and/or build weapons of mass destruction.
 
This is why I am of the opinion that if so called ESG-friendly products contain government bonds and/or treasuries and/or gilts or whatever one wants to call such papers, no truly ESG-friendly investor should touch such products.
 
You see my point, right? When investing in ESG-friendly products you have to be careful because sometimes you do not get what you expect. On the other hand the run on ESG-friendly products is important these days, especially as regulation forces investment managers in that direction. Trouble is, realistically there are simply not enough truly ESG-friendly investments available and therefore investment banks and financial product designers must become “creative”.
 
Anyhow, there is one more thing I want to add. Today everyone is fixed on CO2 emissions even if “greenhouse gases” in general are a much more important factor than CO2 emissions only. By now just about everyone should appreciate the fact that it is greenhouse gases we have to look at because greenhouse gases (GHGs) are absorbing infrared radiation and cause the so-called greenhouse effect. As you may know GHGs are both natural gases, such as carbon dioxide, water vapor, methane, and nitrous oxide, as well as human-made gases, including chloro- and hydro-fluorocarbons. Yet, it is very easy to blame a diesel car taxi driver for polluting our cities but let’s face it keeping for example a house pet for the sheer pleasure of keeping a house pet is probably even worse. According to the Humane Society of the United States, there are 86.4 million cats and 78.2 million dogs in homes around the U.S.. Just imagine, the enormous amount of greenhouse gases the global population of house pets is producing directly and indirectly.
 
Now tell me, why is the media not tackling this issue, why are they so concerned about fossil carburates but do not seem to be considering house pets, or children, farming, etc? I would almost assume, because you cannot win elections by telling the electorate to put to sleep their house pets and to stop reproducing, i.e. stop having children. It is much easier finding one weak opponent – today it’s the diesel car producers and drivers – and bang on their heads until everyone believes that producing diesel cars is the worst thing that ever happened to humanity.
 
What drives me crazy is that large masses of people can be irritated and thus manipulated so easily.
 
Ladies and Gentlemen, I urge you to ask questions, always. Do not just believe what the media and politicians want you to believe. The first ones have only one interest, to catch your attention for as long as possible, like this they can charge higher rates for adds and thus earn more money, the later ones only interest is either to be elected or to be re-elected. This is it! They don’t care about you, they either want your attention to make money or your vote to get power and make money.
 
As always, I encourage you to send me your feedback and/or questions but please don’t forget (instead of hitting the reply button) to send your messages to:
 
smk@incrementum.li
 
Many thanks, indeed!
 
And now, Ladies and Gentlemen I wish you a great day and weekend.
Kind regards,
 
Yours truly,
 

Stefan M. Kremeth
Wealth Management
Incrementum AG