We applaud the Sedona City Council for reaching a consensus not to alter the city of Sedona’s banking and investment strategy to reflect “environmental, social and governance” goals, better known by the acronym ESG.
ESG is a form of low-grade sanctions regime to show displeasure toward companies, firms, investment funds or programs that don’t adhere to the investors’ stated values. However, they are ineffective, at best and have no proven impact on people or the planet.
Boycotts of bad actors can have a major effect on changing policy when they are targeted, comprehensive and overwhelming, which is a rarity. The Montgomery Bus Boycott from 1955 to 1956 didn’t bankrupt the Alabama city’s bus system, but it did highlight the racial disparity in the city and its public transit system, leading to the Browder v. Gayle court decision. The worldwide boycott of Apartheid South Africa caused economic hardship in the country from the 1980s onward, but it was internal political actions that led to reforms and the dismantling of Apartheid in the early 1990s.
But individual cities choosing with whom to invest on the basis of relatively arbitrary ESG numbers derived by for-profit consultants doesn’t really change the corporate culture at any of these firms. The city of Sedona could pull out of a bank and take its $78 million somewhere else, but a small town like ours is not that big a player in the worldwide financial scheme — for instance, Amazon earns about $52 million per hour. That same bank might then lower some rate by a quarter of a percent and attract billions from hedge funds, negating the effect of any loss we might inflict on moral or ethical grounds.
There is no standard benchmark for ESG ratings and how various consulting firms may rank those companies. ESG investing is relatively new and unproven in the long term.
It’s also hard to assign an arbitrary numerical value to non-numerical human activities. It’s kind of like pricing art, which is all in the eye of the beholder — and the eye of the consulting firm doing the estimates. Maybe a textile firm in a repressive autocracy ranks higher as a “green” corporation because the workforce and laws are stable — that’s easy when political dissent for workers’ rights is violently crushed.
An oil corporation in a liberal, third-world democracy might pay high wages, provide worker housing and donate to local nongovernmental organizations because it wants better workers, but because it pumps oil instead of making organic oven mitts and sundresses from materials farmed organically by workers treated no better than medieval serfs, it gets a lower ESG rating.
Likewise, a company might have a low ESG rating because it plants enough trees in the Amazon rainforest to offset the massive human misery caused at its lithium mine over the border in Chile.
Sedona City Councilman Brian Fultz noted that computer maker and electronics corporation Apple has received a lower ESG rating for its environmental work. That number seemingly ignores both Chinese workers at Apple subcontractor Hon Hai Precision Industry committing suicide via violent defenestration at the company’s dormitories as well as children dying while being forced to mine cobalt in the Congo. “Think different,” sure, but don’t think about the modern-day slaves who might die to make an iPhone, such as the 150 workers who threatened to jump to their deaths en masse at Apple’s Foxconn subcontractor in 2012 unless conditions improved.
In a capitalist system, any investing is going to be fraught with conflict — that’s part of what happens when one takes money and loans it to another whom they do not directly employ with the instruction, “Go, make me more of this.”
Diversification is the best way to invest, which is why mutual funds remain relatively stable. Even the “best” banks have some shady investors and investments. Even the best, über-vegan, all-organic, born-again, utopia-corp that pays entry level works $100,000 per year is likely run by a CEO with the ethics of Sam Bankman-Fried.
Sedona and other governments should direct their investments of our public money toward banks and companies that are local, the easiest to work with, the most accommodating, the most transparent and with the highest return rather than institutions selected on the basis of a third-party-determined arbitrary number that can be easily manipulated for a profit.
