Monday, June 29, 2020

The FT's Jamie Powell and Barron's Matthew Klein Both Do Cameos at Upfina: "ESG: Robots > Humans"

Ha! I'm beginning to think of the FT Alphaville peeps, current and former, as sort of like the Trilateral commission.
Or maybe the Illuminati.
Strategically embedded around the world to spread the doctrine of Alphavilleism.

From Upfina, June 26:

ESG: Robots > Humans
In our previous article we mentioned ESG is the equivalent of going overweight tech and underweight energy. That makes this factor look like it’s following momentum more than making a difference. The chart below adds new information about what an ESG investment is. As you can see, major ESG ETFs tend to include firms with fewer employees. This is the asset light trend we’ve noted previously. Fewer workers mean less carbon dioxide emitted, less trouble with unions, and less chance of a gender pay gap.
It’s extremely dubious to suggest the solution to worker pay and equality is to just not hire anyone. In a sense, investing in these firms penalizes everyone equally. There are unintended consequences to trying to invest ethically. It sounds good in theory, but there are problems with it in practice. Keep in mind, it’s possible to invest in an energy stock and use those profits to buy an electric bike for transportation. Your spending habits and where you donate your money can make an impact, while your portfolio makes you money.
To be clear, buying stocks with fewer employees and certainly owning stocks with high margins and high return on equity aren’t bad ideas. We’re just explaining what ESG investing entails. It makes sense the factor has done well in the past few years based on the details we laid out. However, we wonder if it will lose popularity if it doesn’t do well. Secondly, most companies are trying to be ESG. Even energy and cigarette companies are trying to be included in these indexes. If everything becomes ESG, then there isn’t much to it. Finally, it’s worth noting it’s extremely important to have management have the correct long term incentives. This isn’t about morality; it’s about long term stakeholder profits.

Labor Was Doing Well
Let’s take a moment to recognize that workers were doing relatively well before this recession. It’s amazing how cyclical political goals for labor versus corporations are. When the economy is in a recession, the government tries to support businesses to help them keep workers. When the economy is near the end of an expansion, there are pushes to raise the minimum wage and have workers make more money. When the economy is doing well, rich people profit which causes real wage growth and low unemployment to get pushed aside making it look like workers are doing poorly. Outside of the fiscal stimulus, we can safely say now workers are doing poorly.
As you can see from the chart above, workers had been making gains in the late 2010s. Employee compensation as a share of net value added for non-financial firms increased from about 67% to about 73%....