It has been investment industry practice to carefully interrogate the methodologies used by ratings services to assign ESG ratings to companies and to determine the validity of a process based on the intricacies of the system utilized. But what if we focused on the output of those processes instead? What might one see?
It’s obvious this difference can’t be on the basis of “E,” or environmental protection, and from Green Alpha’s point of view, it’s hard to believe that a company that has been funding suppression and denial of climate science for decades could possibly deserve a high governance score, so “G” doesn’t seem like a reasonable basis for the difference.
So that leaves us with “S” – the social aspect. For this, let’s leave the climate elephant in the room aside and focus on human health. Combusting fossil fuels results in pollution causing approximately 10 million premature deaths worldwide every year, which is about four times the number of premature deaths caused by COVID-19 in 2020. Meanwhile, COVID-19 vaccinations are estimated to have prevented 279,000 deaths and 1.25 million hospitalizations in the United States alone through July 1, 2021. Clearly, ExxonMobil is not the only culprit in fossil fuel pollution, and Moderna is not the only vaccine maker, but their relative impacts on human well-being are clear.
It is both sad and humorous that if Green Alpha, in any of our portfolio strategies, were to sell Moderna and buy ExxonMobil, our portfolio-level ESG ratings would go up. Another biotechnology company, bluebird bio, which has made accessibility and affordability of genomic therapeutics a cornerstone of its business, isn’t rated by MSCI ESG at all, so owning that would lower a portfolio’s average ESG score as well. Absurd.
Rhetorically, we must ask ourselves: what could possibly be of greater societal value than striving to preserve human life? If saving lives rather than causing deaths isn’t reflected in a company’s ESG rating in a highly material way, what is the purpose of the “S” in ESG at all?
At the time this blog was published, Green Alpha Advisors held shares of Moderna (ticker MRNA) and bluebird bio (ticker BLUE) in some client accounts. Green Alpha Advisors did not hold any shares, in house accounts or client accounts, in ExxonMobil (ticker XOM) at the time this blog was published. Nothing in this blog should be construed to be individualized investment, tax, or other personalized financial advice. Mentions of individual securities are for illustrative purposes only and should not be considered a recommendation to buy, sell, or hold any security. This blog does not purport to contain all the information that may be required to evaluate Green Alpha Advisors and its investment strategies. Please see additional important disclosures here: https://greenalphaadvisors.com/about-us/legal-disclaimers/