Yes, the good Professor is often widely off the mark as anyone would be when your canvas becomes “the world” vs business models and marketing and an occasional Lessons of Dad reference.
But this piece is deadly on piste and on track and written in a way that suggests…”Wow, nothing further to add.” Which is very hard for us.
There is something that can be said for direct impact investing through private investment. And direct VC investing into areas that promise monster humanity changes. But the history of finance is taking a narrow and conceptually effective idea and marketing the crap out of it to the point of fraud. That’s where we are in the goodness cycle.
Excerpt from Scott Galloway’s article, “Jumping the SPAC“, September 17, 2021.
It Ain’t Easy Being Green
If you use Aspiration you will, according to the firm’s materials, “save the planet.” Again … awesome. Except you won’t. The company guides debit card purchases toward companies with a high “AIM” score (“Aspiration Impact Measurement”), a metric Aspiration appears to have invented and defines nowhere. But a look at the 10 most highly AIM-rated companies (i.e. the “AIM Nice List”) suggests the scoring system leans towards the qualitative. The top 10 in 2018 include Sephora for “promoting fearless beauty,” Target for “normalizing diversity,” Marriott for “adding love to travel,” and my favorite, Delta for “flying cleaner than ever.”
Aspiration claims the Redwood Fund is “100% fossil fuel-free.” But almost 3% of its holdings are in Southwest Airlines, a company that burns 2 billion gallons of fuel per annum and was labeled a “high ESG risk” company by Sustainalytics. Another portfolio company is Linde, an industrial gas company that touts its “experienced team of oil and gas specialists,” and brags that it’s “been supporting the industry for decades,” with particular expertise in … wait for it … fracking.
Sustainable energy is Redwood’s smallest investment sector, accounting for only 2.3% of total assets. The fund’s investment in Southwest alone surpasses that. The bulk of the portfolio consists of stocks that are prevalent in every portfolio, such as Microsoft and Starbucks.
And this gem from Aswath Damodaran from his recent post “The ESG Movement: The “Goodness” Gravy Train Rolls On!“ drives the point home.
“Telling companies that being good will always make them more valuable, investors that they can add morality constraints to their investments and earn higher returns at the same time, and young job seekers that they can be paid like bankers while doing peace corps work, is delusional. In the long term, as the truth emerges, it will breed cynicism in everyone involved, and if you care about the social good, it will do more damage than good.”
