Sunday, January 25, 2009

It's as easy as E.S.G.

It has always been termed socially responsible investment – and I’ve always had a non-specific aversion to this description. The issue, so specific and so compelling reduced to that word. Responsible. Yuck. It sounded like the castor oil of the investment world.

Not only did it not identify the problems, it took all the excitement and energy out of the possibilities. It wasn’t about being responsible – it was about being human, and more importantly, about being courageous.

Now, we enter the age of ESG – Environmental, Social, Governance, and all the issues are contained in the clarity of these three words, these three letters. As the financial tragedy were living through unfolds, they will become part of our common understanding.

The Obama administration will bring with it a groundswell of environmental activism. The financial disaster we’ve created has set the stage for different priorities, slowed us down. Extravagance is taboo. Authentic is what we will admire.

There will be difficult challenges. Barack Obama’s support of clean coal technology was easy, a political maneuver necessary for him to carry certain states. It’s easy to support a technology that doesn’t exist, because it is so easy to abandon it. The coal industry is perceptive in mounting one of the great public relations campaigns supporting the future of what they call “clean coal”.  Coal is an industry on the verge of extinction. Carbon sequestration and capture, the theoretical process of injecting CO2 into the ground, is no more a reality than Santa Claus (sorry kids). We are decades away from anything resembling such a technology, and we just don’t have the time. 

As we come to grips with the truth - that our time really is running out - only a few generations left on a habitable Earth, the decisions will be made.  The truth, absolutely, is that coal is the greatest threat to our future. We must stop burning coal. Not in ten, twenty or thirty years, but now. When Al Gore endorses civil disobedience to prevent new coal plant construction, it is with this understanding. The recent protests, arrests, high profile cases - activists chaining themselves to bulldozers – it is just the beginning. They are right on target. There will be thousands more. 

China will bury its citizens faster than they can build coal-fired power. They are adding a massive 1000 megawatt coal plant PER WEEK to what is already a problem of epidemic proportions. It must stop, and they know it. They’ve said so.

The social issues are many– human rights, animal rights, alcohol, tobacco, weapons, gambling - each with negative impact on human existence that cannot be denied or defended. The governance issues are in focus now - excessive executive compensation, financial protection for the working man and woman, the lack of regulation and supervision everywhere, the rights of shareholders under attack, so much that cannot be covered in the space of this article. It’s all contained in those three words, those three letters. ESG.

Investment will be simpler, clearer. I’ve said “Understand the problems, invest in the solutions.” Simple. It will take time. In the New Year, retailers will fold like lawn chairs, crushed by the weight of their holiday season inventories. Unemployment will escalate to double digits. We will be unable to print enough money to keep industries on life support.

We are in store for an historic and necessary restructuring of our system. Change will be driven by the public resentment over the blatant corruption, greed and deception throughout government, industry, and finance; will finally begin to boil over. We tolerated it when we were comfortable. That was our part in this nightmare. If you don’t believe this, it’s probably because you don’t know how bad this will get.

Last year I had the privilege of joining the eminent economist Paul Krugman in a discussion of Healthcare and The Economy (this was when healthcare was an important issue). We were speaking before hundreds of Air America devotees on the AAR cruise. Mr. Krugman, now the winner of the 2008 Nobel Prize for Economics, and me - a legend in my own mind.

A woman stood up to ask as question. She said that she lived in the same community as Bill Gates - asked if she’d have to put barbed wire up to protect her property. Well, Mr. Krugman and I had different answers. He had a cogent response steeped in fundamental economic principles that we have always relied upon

I just said, “yes, you will. Buckle your seatbelts as 2009 approaches. Our unflappable new President will need to impart us with every ounce of his available calm.


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