With the market generally doing its own thing with the window dressing, tax loss selling, probably a lump of coal rather than a Samta Claus rally and ETF rebalancings, it’s a pick and choose environment for the moment. We nibbled a little but mostly stayed on the sidelines – which is a little dangerous as it gives my brain a long leash with considering the impact of current events.
In the realm of possible unintended consequences – or in this instance, perhaps intended – this week’s news of China’s new law got my attention. My guess is that the initial deepfake targets will be the Pooh parodies of Xi Jinping, but then the what-ifs started rattling around my brain. On the surface there’s a quaint logic at play, but the internet – despite various in-country censorship rules – is a worldwide phenomenon. That said, it’s also a fact that Biden haters currently generate a plethora of deepfakes to embarrass him or lend ‘credence’ to their narrative. What-if Biden meets the Chinese leader and the Biden haters create a deepfake to poke Biden but wind up embarrassing the Chinese in the process? Since they aspire to be treated as a US equal, will they use a tool from our toolbag and indict a US national for violation of Chinese law? Perhaps the answer to the fake news problem is Chinese world-wide enforcement? I’m not sure we had this in mind when we established a precedent …
Another item catching my eye was the CFA Institute’s take on ESG. Though largely slanted towards the quants, their basic question was, “Are ETFs (passive) a viable investing tool when ones’ focus is sustainability”. The basic answer is “no” for essentially the same reason I found in 2020 – the metrics being measured are industry specific. In layman’s terms, a captive government entity, MTR Corporation (MTCPY – Hong Kong), can score an AAA composite rating with MSCI while a Certified B Corp, Amalgamated Bank (AMAL) musters only an A. AMAL is only measured on MSCI metrics against a peer group within their industry despite their sustainability embrace. “We are committed to environmental and social responsibility. We’re net-zero and powered by 100% renewable energy, and we have a long, proud history of providing affordable access to the banking system, supporting immigrants and affordable housing, and being a champion of workers’ rights.”, they state. MSCI’s determination is apparently that in the banking industry this doesn’t hold much weight.
Then there’s the “pillars” of which the ‘S’ and ‘G’ are pretty much a replication of existing laws and regulation.
In my opinion the Environmental pillar is the primary thrust as it provides a fresh roadmap and benchmarking process for the progress of individual companies towards the goals of the Paris accord.
I did, however, identify the MSCI composite rating for the portfolio and 31.8% are “Leaders” while 50.6% are “Average”. 6.88% are laggards (generally Texas banks lending to the oil patch) and 10.6% are unrated.
Even according to MSCI – flaws and all – I’m not perfect but on the right track. Therefore, I will continue doing my own thing – choosing those doing the least harm and making strides towards carbon neutrality while waiting for real, viable metrics to emerge. Therefore, as 2023 comes into focus, ESG as an investment driver is on the backburner – except as a contrarian play buying on weakness the ones the ones in the crosshairs of the Republican skirmish against environmental issues.
Next week should be the year-end report and hoping you had a great holiday!
Seeking Returns 