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Elon Musk speaks out against ESG

Elon Musk is the latest figure to push back on one of the hottest trends on Wall Street and in American business: ESG, the idea of ​​valuing companies based on how they respect environmental, social and governance, rather than simply looking for benefits. Musk called ESG a ‘scam’ after S&P Global, the manager of a popular ESG index, announced it had kicked Musk’s electric car company Tesla from the index, Jack Ewing reports of the Times and Stephen Gandel of DealBook.

Musk filed a complaint on Twitter that S&P gave high marks to Exxon Mobil, one of the world’s largest producers of fossil fuels, “while Tesla didn’t make the list!” He added: “ESG is a scam. It has been weaponized by fake social justice warriors.

ESG is facing a growing backlash. Earlier this month, former Vice President Mike Pence, a potential 2024 Republican presidential candidate, said he wanted to curb ESG, saying it elevates leftist goals above interests. companies and their employees. BlackRock, an avowed leader in sustainable investing, said it would back fewer shareholder proposals on climate issues because many are too “prescriptive”. And earlier this year, private equity executive Steve Schwarzman, among others, accused ESG of creating a credit crunch for energy companies, which he said contributed to soaring oil prices.

Part of the problem is that ESG is not well defined. Shortly after Russia invaded Ukraine, two Citigroup stock analysts argued that arms manufacturers and defense contractors should be considered ESG investments because their products help defend democracy and preserve peace. Others called it absurd.

For S&P, there is more to Tesla than its environmental record. S&P said it also considered things like allegations of racial discrimination and poor working conditions, as well as Tesla’s handling of Autopilot crash investigations. “Tesla just isn’t an open and closed ESG case,” Jon Hale, who leads sustainability research at mutual fund tracking firm Morningstar, told DealBook. “While it’s clear that the company’s product benefits the environment, Tesla is now a big business and also impacts employees and customers, and these issues are relevant to ESG investors.”

What is ESG good for, anyway? Part of the ESG reaction is along predictable policy lines. But there also seems to be confusion about the approach’s broader goals, even among its fans. The old approach to so-called socially responsible investing meant avoiding tobacco companies, gun makers and other businesses that profit in morally questionable ways.

The ESG approach, on the other hand, is less focused on whether a company’s products are good for society. A fundamental principle is that companies whose leaders care broadly about issues such as the environment and diversity will produce strong returns on investment. It explains how Exxon can end up in an ESG index, if its executives are seen to be taking serious steps to reduce its environmental impact, and how Tesla might not, despite the millions of gallons of gasoline its cars burn. not. The nuance there is easily lost on, say, Twitter, where in a subsequent tweet, Musk called Tesla’s removal a “clear case of wacktivism.”

Melvin Capital, the hedge fund torpedoed by the GameStop frenzy, is closing its doors. Gabe Plotkin, who founded Melvin in 2014, wrote to his investors that the “appropriate next step” was to liquidate the fund’s assets and return their money. Plotkin rose to prominence as one of the most successful portfolio managers to come out of Steve Cohen’s former hedge fund, SAC Capital.

Wells Fargo’s efforts to increase diversity lead to fake job interviews. Seven current and former Wells Fargo employees said their direct bosses or human resources managers told them to interview black and female candidates even though the decision of who to hire had already been made.

Homeland Security is suspending its Disinformation Committee. The group, which was formed to help counter viral lies and propaganda, was put on “pause” weeks after its inception. He had drawn criticism of the government’s overreach, particularly from the right, and his leader was under attack online.

President Biden invokes defense powers to ease formula shortage. Biden said he would deploy Department of Defense planes to expedite formula deliveries to the United States. His decision came as the formula shortage threatened to become a political disaster for the administration.

Male and female soccer players representing the United States internationally will receive equal pay. The deal was struck just over six years after a group of stars from the United States Women’s National Team, World Cup winners, launched a campaign to overcome what they described as a years of wage discrimination.

Although inflation has intensified in recent months, the economy has grown, fueled by consumer spending boosted by government stimulus measures and a booming job market. Today, this engine of growth seems to be running out of steam. DealBook turned to our colleague Peter Coy, veteran journalist and author of a newsletter from the Times on the economy, to understand what happened to corporate pricing power and why investors are so scared. Here are his thoughts.

On inflation: We hear a lot about “greed”, which is when companies cause inflation by raising prices. I said on The Argument podcast this week that’s not quite it. Businesses are opportunists. High inflation can provide them with a hedge to push through price increases. But these increases are more an effect of inflation than the main cause. And there’s a limit to what they can do. The spooky earnings reports from Target and Walmart this week are pretty clear proof of that.

On Retailer Profits: Getting correct inventories is incredibly difficult. When the shelves are empty, retailers order too much and then they have too much. On the bright side, this could be good for consumers, as retailers will have to cut prices to move merchandise.

On the risk of recession: I wrote in my newsletter that the risk of recession is high. The low unemployment rate does not protect us against recession. In fact, recessions usually start just when the unemployment rate is near its low point. The Federal Reserve has suddenly gone from dovish to hawkish, and investors are belatedly realizing that this is going to be bad enough for stocks.

The decline in the stock market also extinguishes the millions of amateur investors who got into trading in the pandemic bull market. Some scramble to adopt defensive positions, and others cash in completely.

— David Cancel, CEO of Boston-based marketing firm Drift, on how hard it is to get fired right now.

The Russian economy is surprisingly stable at the moment, given the country’s isolation since its invasion of Ukraine. The central bank was recently able to lower interest rates to 14% from 19%. The ruble is at its highest level for more than two years. And high oil prices have cushioned the impact of sanctions, which have forced the government to sell crude at a huge discount.

But the situation is likely to get worse, Patricia Cohen and Valeriya Safronova of The Times write. Forecasters expect continued severe inflation and a deep slowdown: the central bank predicts a staggering 18-23% inflation rate this year, and a fall in total output of up to 10%. “Really tough times for the Russian economy are still ahead of us,” said Laura Solanko, senior adviser at the Bank of Finland’s Institute for Emerging Economies.

Some Russian companies and workers feel the distress. Ivan Khokhlov, who co-founded 12 Storeez, a clothing brand with 1,000 employees and 46 stores, tackles the problem directly. “With each new wave of sanctions, it becomes more difficult to produce our product on time,” he said. The company’s bank account in Europe was blocked due to sanctions shortly after the invasion, while logistical disruptions forced it to raise prices: “While logistics with Europe are destroyed, we count more about China, which also has its own difficulties”.

Russia cannot necessarily rely on oil and gas sales to sustain things. Europe’s wish to turn its back on Russian oil and gas will force Moscow to look to countries like China and India for customers. But the pivot to Asia, said Daria Melnik, senior analyst at Rystad Energy, “will take time and massive infrastructure investment which, in the medium term, will see Russia’s production and revenues fall precipitously.” A US effort to extricate Russia from its central role in global energy supply could further delay any recovery.



Russia–Ukraine War

  • Google’s Russian subsidiary will file for bankruptcy, saying the seizure of its bank account by Russian authorities has made its operations “unsustainable”. (CNBC)

  • After three years without a confirmed US envoy to Kyiv, the Senate has approved Bridget Brink as the new US Ambassador to Ukraine. (Policy)

  • The EU is offering up to $9.5 billion to help Ukraine pay its short-term bills. (WSJ)

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