2 Sep 2022
Fifteen months ago I pointed out that ESG (Environmental, Social and Governance) investing would make a few people rich (via the vast public subsidies directed their way) and many people poorer. I tried to appear even handed without disguising my characteristic scepticism.
Subsequent events have proved to me that I was much too restrained. ESG is not only rubbish but it is toxic rubbish. It fills up companies’ financial reports with box ticking nonsense that replaces facts that investors need to make decisions based on, you know, the financial outlook.
Tom Kerridge is a “celebrity” chef who owns three successful gastropubs. He says that his energy bill is about to rise from £60,000 to £420,000 a year. The UK hospitality sector, having spent the best part of two years in imposed lockdown, is now staggering out of control towards a new disaster.
All UK businesses that need significant retail outlets have seen their share prices dive because investors fear that rising energy costs will push them into loss or worse.
On 16 June Halfords released upbeat results for the year to April 2022. The dividend was 9p a share and the dividend policy is described as “progressive”. Today the shares are at 130p, down 60% this year, offering a theoretical yield of 7%. So I turned to Halford’s annual report and accounts to seek some clue about the company’s sensitivity to energy costs.
It seems that for Halfords risk management is based around a Task Force on Climate-related Financial Disclosures (“TCFD”). As the lights are about to go out Halfords’ ESG committee is meeting monthly to discuss the effect of climate change on the business between 2030 and 2050. The significant risk to Halfords retail sites is said to be extreme weather that results in flooding across the UK.
This might be the stuff of satire were it not for the fact that it replaces rather than supplements useful analysis.
Sainsbury’s shares are down 30% this year and the dividend yield appears to be 6.5%. As with Halfords, investors probably have visions of winter shopping in mittens by candlelight. Sainsbury’s annual report has seventeen pages of risk assessment. The company is watching out for IT, health and safety, regulation, product safety, employee retention, climate change, Covid, Brexit and Ukraine – clearly a risk assessor’s job is, almost by definition, never done. But once again, if energy costs are going to be a problem no one seems to have seen it coming.
In May Kingfisher reported a strong performance in the quarter to the end of April. It raised its dividend strongly. Its shares are also off 30% this year and it supposedly yields 5.3%. Kingfisher’s annual report and accounts give me a better idea of what really concerns the management for which I am grateful. That having been said, the strange cocktail of changing customer preferences, political risks and infectious diseases is full of ingredients that are surely beyond the company’s control.
And, oh look. Kingfisher publishes a separate 67-page Responsible Business report. It promises to be Forest Positive and to achieve Net Zero by 2040. Though in a rare concession to the fact that it is supposed to be a commercial business, Kingfisher sees a whiff of opportunity in the goal of making people’s homes more efficient. In France the state offers grants for domestic energy renovations and one of Kingfisher’s goals in the UK is to lobby for something similar. Public subsidies are truffles for snuffling corporate lobbyists.
Now I am annoyed. I know that the imminent possibility of recession, rising costs and consumer unconfidence is a good reason for the weakness of these shares but I can already hear a chorus of “no one could have seen this coming”. My reply is that you might have seen it coming if you hadn’t had your head up your own virtue-signalling orifice.
ESG was once nothing worse than a monumental waste of time. Now it is much worse. It is an unforgivable waste of resources and its opportunity cost is all the work that might have been done to analyse the sensitivity of businesses to events that happen out there in the real world.
Postscript: if I have the time I will next write a long post on the extensive list of things that no one could have seen coming. Here’s a classic oldie from the CEO of Taylor Wimpey.