I wasted too much time practicing self-censorship. I bit my tongue instead of voicing my concerns when corporate executives, asset managers, and consultants said that more disclosure of medium- and long-term information would be good for companies and the capital markets, but never pushed their own company, the companies in which they invested, or their clients to actually adopt the concept. I was also afraid to challenge the "settled science" of climate change and the lunacy of DEI because of my fear of losing friends and clients. It is time for me to live up to the standards set for me by four Polish peasants and two members of The Greatest Generation.
March 2023 / January 2024
ESG today is very different from what I learned when I was first exposed to the subject while working at Arthur Andersen. It is also far removed from what I learned from people who had a role in creating the first ESG focused organizations and from those who worked for the first companies to publish ESG or integrated financial and ESG reports.
ESG has been hijacked and bastardized. Climate change and diversity, equity, and inclusion (DEI) have pushed potentially material ESG issues such as hazardous waste management, data security, employee safety, materials sourcing, and business ethics into the background without improving the overall quality and relevance of ESG information. As a result, ESG as a whole is under attack. That is a mistake. ESG is neither the savior of humanity, nor the incarnation of pure evil.
Climate change is real. Solar cycles, oceanic oscillations, and other factors that humans do not fully understand have been driving changes in our planet's climate since the Earth's atmosphere was formed four to five billion years ago. However, various international organizations and individuals have chosen to ignore the reality of five billion years of changes in Earth's climate. Instead, they claim that climate change arises solely from human activity and base this assertion on an aggregation of approximately 100 different computer models. Climate models that ignore solar cycles are flawed. Climate models that ignore oceanic oscillations are flawed. Climate models that rely on temperature measurements that are biased by placement near large asphalt surfaces and other areas that produce or trap heat are flawed.
Furthermore, models do not provide indisputable facts; they are simply tools that generate predictions about what might happen if a specific set of assumptions actually occur in the future. For example, Albert Einstein created one mathematical model to predict the nature of gravity and another model to predict the nature of space and time. It has taken over 100 years of observation and experiment to prove that Einstein’s models were correct in most of his predictions. Models that predict the changes in the Earth’s climate 30 or 50 or 100 years from today cannot and should not be viewed as infallible. Climate models are not proven, indisputable facts; they are, at best, predictions or, in the worst case scenario, wild-ass guesses. Everyone who uses flawed computer models to create fear and panic around the world is talking nonsense with the intent of deceiving and misleading people. They should be challenged at every opportunity to do so.
The second significant ESG problem is DEI. DEI is based on that idea that many people are victims who should feel free to blame everyone but themselves for the consequences of their poor decision-making and their personal failure to take responsibility for their lives. DEI is bullshit. Not one person on this planet was born with a guarantee of a long life, love, wealth, happiness, and success in their endeavors. If a person wants a better life or better outcomes from their actions, then they must get off their dead ass, work for what they want, and embrace their personal responsibility for every one of their successes and failures.
ESG can be fixed if corporate leaders, shareowners, asset managers, and consultants have the courage to challenge the unwarranted emphasis on climate change and DEI.
March 2023 / January 2024
The reporting of ESG information suffers from board directors and company executives who place an unwarranted reliance on the opinions of people who have no stake in the future success of a company. ESG disclosures should be based on a thoughtful and rigorous materiality evaluation process.
The relevance and usefulness of ESG information would be greatly improved if corporate boards would take their fiduciary duties seriously, if corporate executives would ignore self-designated experts and social media, and then both would apply analytical and critical thinking to their discussions about the materiality of financial and ESG risks.
What do I mean by analytical and critical thinking? “Analytical thinking is the process of gathering information and inquiry to help understand and explain things. Critical thinking is a reasoned approach to inform opinions, decisions and judgments, and, determining if the information we use for that purpose is relevant, accurate, timely, complete, consistent, fair and balanced, of sufficient breadth and depth, and supported with sound evidence.” To learn more, read Navigate Complexity—Short Courses in Complex Problem Solving and Strategy & Design for Complex Challenges at navigatecomplexity.com.
With analytical and critical thinking as a foundation, the quality and relevance of ESG disclosures can be improved.
The decision about the materiality of ESG issues should be made by a company’s executives in consultation with the board of directors. Why engage the board of directors? Only the board of directors has (at least in the U.S.) a FIDUCIARY duty to act in the best interests of the corporation. Corporate executives, employees, customers, suppliers, asset managers, and the gamut of other stakeholders may be a significant audience. However, none of them have a fiduciary duty to act in the best interests of a corporation.
Material ESG issues should be disclosed and discussed in a company’s annual report. These disclosures should include: a discussion of the board of directors oversight role with respect to those issues; an explanation of how ESG issues link to medium- and long-term strategic objectives and how progress towards meeting goals will be measured; a summary of the company’s risk management and mitigation practices for ESG issues; and a description of how ESG risks effect financial performance.
ESG is at a crossroads and the relevance and usefulness of ESG information is at stake. The decision about which direction to turn rests squarely on the shoulders of a company’s board of directors and executives.
March 2023
Once upon a time, it was fashionable to prepare and publish a life cycle analysis of, for example, gasoline-powered cars and trucks.
Why haven’t organizations such as the IPCC, World Economic Forum, BlackRock, Vanguard, and State Street Global Advisors demanded that global auto makers prepare a life cycle analysis of battery-powered cars and trucks?
Why haven’t these same organizations demanded that the manufacturers of wind turbines and solar panels prepare a life cycle analysis of their products?
How would life cycle analysis capture and classify the use of child and slave labor in mining and refining the rare earths that are necessary in building electric car batteries, wind turbines, and solar panels?
What would a life cycle analysis have to say about the long-term impact of a full-scale carbon capture and storage project?
March 2023
“Despite clear evidence that investors prefer long-term communications focused on a few key drivers of performance, companies remain mired in information demands from all sides. Long-term roadmaps are a form of investor communication that brings together a unified articulation of how a company will create long-term value with the most relevant metrics to track long-term performance. They have a proven record at leading companies, and evidence suggests that the majority of investors (especially long-term investors) prefer this approach. By focusing on key elements of performance such as competitive advantages, long-term objectives, and a strategic plan matched with clear capital allocation priorities, companies can build buy-in among long-term investors who support a focus on long-term value creation.” (FCLTGlobal. Driving the conversation: Long-term roadmaps for long-term success. February 2019.)
Furthermore, “Evidence from extensive research confirms that long-term oriented companies and investors outperform their peers.” (FCLTGlobal, 2020 FCLTCompass Report, 2020. McKinsey Global Institute, Measuring the Economic Impact of Short-Termism, 2017.)
This brings me to a question; well, actually three questions.
How many of the asset managers that are members of FCLTGlobal make it a regular practice to engage the Board of Directors and CEOs of companies in which they invest in a discussion about the reasons why a company should disclose more information about the medium- to long-term business strategy in corporate annual reports?
How many of the CEOs of company’s that are members of FCLTGlobal are publishing information about their medium- to long-term business strategy in their annual reports?
How many of the CEOs of consulting firms that are members of FCLTGlobal are advising their clients to provide information about their medium- to long-term business strategy in their annual reports?*
July 2023
Empirical evidence is defined as "originating in or based on observation or experience" (Merriam-Webster's Collegiate Dictionary, 11th Edition).
Many people accept the UN IPCC climate models as evidence that, in the words of António Guterres, "...the era of global boiling has arrived." I don't understand the blind fealty to a computer model. In contrast, it has taken over 100 years of observation to prove that Einstein's theories of special relativity (space and time) and general relativity (gravity) were generally correct in their predictions about the nature of the universe.
Why are the UN's climate models treated as being infallible when not one of the previous models has been accurate in its predictions. What is it about climate models that strikes so much fear into so many intelligent people? With minimum effort, I found global warming and global cooling predictions dating back to 1939 and every one failed the accuracy test.
March 2023
“The mechanism and even the existence of the Atlantic Multidecadal Oscillation (AMO) have remained under debate among climate researchers, and the same applies to general temperature oscillations of a 60–90-year period. The objective of this study is to show that these temperature oscillations are real and not artifacts and that these oscillations have different external cosmic origins. The authors have studied how well the variations of astronomical harmonic resonances (AHR) could explain the 60-year temperature variations, which are based on instrumental records and on the tree-ring data of the supra-long Scots pine tree-ring record for northern Finnish Lapland (subsequently called the Finnish timberline pine chronology [FTPC]), stretching to the year 5634 BC. Powerful volcanic eruptions have significant temperature-decreasing impacts, and they are the major disturbances to eliminate in analysis. The similarities between the temperatures of the tree-ring trend and the astronomical harmonic resonances trend are easy to observe even by the naked eye. The statistical analysis shows that these two signals are statistically related. The analyses also show that the well-known Gleissberg cycle of 88 years is the dominating cycle caused by the Suns’ activity changes but the observed 60-year cycle can be connected to the astronomical harmonic resonances cyclicity.” (Antero Ollila & Mauri Timonen. Two main temperature periodicities related to planetary and solar activity oscillations. International Journal of Climatology | Royal Meteorological Society. October 31, 2022.)
Why do the climate modelers for the U.N. Intergovernmental Panel on Climate Change consistently understate or ignore solar activity when constructing the climate models they use to represent the world?
March 2023
Many asset managers, politicians, and so-called climate experts assert that the use of coal, oil, and natural gas presents an existential threat to human life. They believe this is an irrefutable fact and, as a result, pressure U.S. companies to end the use of fossil fuels.
If fossil fuels are really a threat to the existence of human life, then why aren’t these same asset managers, politicians, and experts calling for an end to China’s exploration, development, production, and burning of coal, oil, and natural gas?
March 2023
In a 2013 article, The benefits and downsides of Integrated Reporting, David Blood (cofounder of Generation Investment) stated, “Most ESG disclosure is not currently conducive to mainstream use by investors, since these reports typically lack clear links with the company’s financial performance and long-term prospects for success.”
Since 2013, how many times has David Blood or any Generation Investment partner asked the Board Directors and the CEO of a company in which Generation invests to link sustainability report disclosures and metrics to the company’s financial performance and medium- and long-term strategic objectives?
March 2023
In recent years, I have read ESG/sustainability reports that mentioned several forms of equity and justice—climate justice, environmental justice, ethnic justice, racial justice, climate equity, and social equity. However, I have not read a single ESG/sustainability report that presented a coherent definition of any of those terms. I have not found any discussion about equity and justice issues that discloses the five-year goals and objectives for those topics, explains how those goals will be attained, identifies the metrics that will be used to measure progress towards equity and justice goals, and discusses the amount of board and executive incentive compensation linked to attaining equity and justice performance goals.
Equity? Justice? DEI? What happened to attitude, excellence, conscience, ethics, talent, integrity, and a sense of honor? Let me put this another way. I have not found a single ESG report or any other source of information that explains why any form of equity or justice should supersede individual merit and Rev. Martin Luther King’s call to judge people by “the content of their character.”
July 2023
On June 29, 2023, in an opinion written by Chief Justice John Roberts, a majority of the Supreme Court concluded that the race-based admissions policies of University of North Carolina and Harvard University violate the guarantees of the Equal Protection Clause of the Fourteenth Amendment. Chief Justice John Roberts wrote, “Eliminating racial discrimination means eliminating all of it.”
How did American society get to the point where, in 2023, the Supreme Court had to rule on discriminatory college admission practices when John Marshall Harlan, associate justice of the U.S. Supreme Court, wrote the following in 1896? "In view of the Constitution, in the eye of the law, there is in this country no superior, dominant, ruling class of citizens. The is no caste here. Our Constitution is color-blind, and neither knows nor tolerates classes among citizens. In respect of civil rights, all citizens are equal before the law. The humblest is the peer of the most powerful." As much as I appreciate the Supreme Court's June 2023 ruling, Justice Marshall said the same thing over 100 years ago.