Does it matter that ESG goals are hard to measure?

From Steve Hayward:

If businessmen do have a social responsibility other than making maximum profits for stockholders, how are they to know what it is? Can self-selected private individuals [management] decide what the social interest is?

In other words, if managers can pick their own vague performance metrics, expect them to shirk or follow objectives of their own choosing.  One would think that management consultants would recognize this, but look at PwC:

...PricewaterhouseCoopers published a “sustainability survey” of 140 major U.S. corporations, arguing that “companies that fail to become sustainable–that ignore the risks associated with ethics, governance and the ‘triple bottom line’ of economic, environmental and social issues–are courting disaster.” The triple bottom line, PwC concluded, “will increasingly be regarded as an important measure of value.”

To be fair, PwC's Guide to Key Performance Indicators, seems to recommend clear performance metrics: 

Key performance indicators (KPIs), both financial and non-financial, are an important component of the information needed to explain a company’s progress towards its stated goals,

... in addition to "management accountability," and "corporate transparency." But pursuing ESG, with the conflicting "triple bottom line" makes it harder to hold managers accountable. Claiming to be Green is easy.  Doing it is much harder.  And no one wants to talk about the tradeoffs which, as Hayward notes, may be substantial:

Despite its flexible criteria, the DJSI (Dow Jones ESG Index) lagged the Dow Jones Industrial Average significantly. Over the last decade it has achieved an annual return of 5.2 percent, while the DJIA has returned 15 percent per year, and the S&P 500 14.8 percent.

And don't you violate your Fiduciary duty if you follow ESG goals at the expense of profit? 

Here are past blog posts on performance measurement. 

BOTTOM LINE: If you cannot measure it, you cannot control it.

What do markets say about Democratic Chances in the midterm elections?

 

PredictIt.org trades contracts that payout $1 if the event occurs, so the prices can be interpreted as probabilities.  The graph above shows that the probability of a Democratic win has fallen from about 68% to 52%.

Below, the probability that Republican's will win the House has risen to about 81%.

Marketing to influencers

Are central banks in a prisoner's dilemma?

...A rate rise in one country may attract money from investors elsewhere, causing the currency to strengthen. This means a reduction in import costs, which may help to cool domestic inflation. But other economies then face higher import bills, which exacerbates their inflation problems. Uncoordinated policy tightening can become its own sort of currency war, in which each country works to shift the burden of inflation elsewhere, with the net result being too much tightening.

Source: The Economist 

Is EU headed for recession because of US?

When the Pope called on the US to stop raising interest rates because it would force the rest of the world into recession, he must have been reading my previous post, What happens when US Interest Rates Rise?  

Now the The FT reports that the EU is saying the same thing, that US efforts to fight inflation by raising rates will lead to recessions in other countries:

The Federal Reserve is leading a worldwide rush of central bank rate rises that risks tipping the world into a recession, the EU’s top diplomat said, as he warned the union is not fighting its corner in the world. 

Josep Borrell, the high representative of the 27-member bloc, said central banks were being forced to follow the Fed’s multiple rate rises to prevent their currencies from slumping against the dollar...

Can negative bond yields last?

If bond yields are less than inflation ("negative real interest rates"), there is an arbitrage opportunity: borrow money in the bond market (at 3% in the graph above) and invest it in an asset (stocks, housing, gold) whose price will increase with inflation (8%).

This kind of arbitrage increases demand for borrowing, driving up the price of borrowing (the yield), until bond yields are driven above the inflation rate.  

You can probably make money if you know when this will happen.  

 

Its getting more expensive to die

Demand for funeral services is increasing as death rates climb, but supply is hampered by staffing problems caused by silly licensure requirements:

...the primary reason students reject a funeral career is the embalming requirement.

Fortunately, there is an easy solution: replace licensure with voluntary certification. Give consumers the option of paying for the embalming training.  If they want it they will pay for it.  

Historically, licensure was adopted as a barrier to entry that raised prices (a dirty way of creating a sustainable competitive advantage).  

HT:  KM

What happens when US interest rates rise?

A rise in US interest rates puts less developed countries with $ denominated debt in a dilemma: 

• If they don't raise rates, their currencies devalue as the US becomes a more attractive place to invest.  This resulting $ appreciation makes it harder to pay back $ denominated debt.
• If they do raise rates, their currencies don't change, but high interest rate slows their domestic economies.

Reuters reports that countries are raising rates to keep their currencies strong which means low inflation, but at the cost of lower incomes, and unemployment.
   

HT:  Cramer

Effects of gender preferences

 NBER working paper:

Currently, women are 3-15 times more likely to be selected as members of the AAAS [American Academy of Arts and Science] and NAS [National Academy of Science] than men with similar publication and citation records.

China directing banks to sell $ to buy ¥

Article: Such an increase in the supply of $ would reduce the price of a dollar, the exchange rate. This would help Chinese consumers by making domestic goods, including imports, less expensive; but hurt Chinese firms by making their exports look more expensive to Americans.