In a world that loves data and quantification no matter what the source or the possibility of reaching a bewildering machine learned conclusion that makes little sense to mere mortals, we are being inundated like everyone else with any variety of ESG questionnaires, regarding both our portfolio and our firm at large.
This note is in regard to the former. One Steven Krach, Undersecretary of State for Economic Growth, Energy and the Environment(apparently the swamp draining exercise is on hold) is out this week asking university endowments to divest Chinese stocks and nosing around index fund providers for more information their Chinese exposure.
In a letter noted in the Wall Street Journal and Bloomberg, the State department is citing Chinese human-rights violations and the threat of de-listing Chinese stocks as reasons for avoiding Chinese investments. “The boards of your institution’s endowment funds have a moral obligation, and perhaps even a fiduciary duty, to ensure that your institution has clean investments and clean endowment funds,” Mr. Krach wrote.
Our first thought is to say something pithy about the inanity of ANY government organization trying to weigh in on investment strategy and criteria. As we have pointed out on numerous occasions, big investment organizations are not innately stupid, despite certain actions to the contrary. They are perfectly capable of analyzing pros and cons in their investments, of which murky Chinese accounting and government interference are fairly obvious risk factors.
But then it occurs to us: why doesn’t this inanity apply to both sides of the political fence? IF X government entity in X administration thinks Chinese investing is “bad,” then why isn’t this a slippery slope when applied to whatever your current topic of disfavor? Pick your current politically correct topic du jour?
And yes that seems laughable in that the State Department is likely to have zero legal authority to police Yale, BlackRock or the State of California to divest politically unacceptable investments. But do you really “need” to have legal authority to impose judgement that will have material consequence without acquiescence?
As we have noted in past letters, there are a lot of things in life whose importance is in the eye of the beholder, and when you start adding up beholders, things seem to get very messy and contradictory and very very difficult to quantify via 55 questions in a database. And “that depends” is not a box we have seen in many questionnaires to check.
If perfection in civil liberty, historical treatment of minorities. diversity, perceptions of income inequality and environmental issues are legitimate issues to consider for investment, isn’t investment in Chinese companies a big ESG no-no? And if that is your criteria, then isn’t the entire US market basically uninvestable? Where does it end? And who is that arbiter?
Back to the questionnaire.
– JB
Follow up reading here.
