What ESG Investing and Ozy Media Have in Common
What ESG Investing and Ozy Media Have in Common
How much longer can we afford to believe the promise of sustainable investing?
This week, I’m making an exception to my no-hyperlinks rule to share my latest article, What ESG Investing and Ozy Media Have in Common, which was published in The American Prospect on Tuesday.
The article explores three flaws at the heart of the multi-trillion-dollar phenomenon of “environmental, social, and corporate governance,” or ESG, investing. The first flaw is the inconsistency and unreliability of ESG ratings. The second is the subjectivity inherent in determining whether an ESG-denominated entity is actually more environmentally friendly, more socially responsible, or more effectively governed than one without the label.
The third flaw is investors’ insistence that ESG funds deliver either the same or better financial returns than traditional investments. This is the flaw that dooms the whole enterprise—or, at the very least, limits the good that ESG might be able to achieve. As previous newsletter guest Joel Bakan told me, “The very conception of what is ‘good’ becomes hijacked by the need to do well.”
Among the countless executives, investors, and business leaders currently jetting to and from the UN Climate Change Conference (COP26) in Glasgow, many—perhaps even most—see themselves as good people with good intentions. They recognize that the planetary status quo is literally unsustainable.
Yet nearly all of them seem incapable of accepting what is obvious to anyone for whom a mention of the World Economic Forum in Davos leaves them cringing, rather than giddy: Addressing global challenges like climate change in a meaningful way will require meaningful sacrifices. It will require fundamental changes to the political and economic systems that have served the winners so well—the systems atop which they sit.
What does all of this have to do with Ozy Media, the now-defunct digital media firm that imploded last month?1 As the article explains:
Imperfect though the analogy is, both Ozy and ESG are premised on the notion that businesses can make a profit and gain a competitive advantage by serving a social purpose. Ozy promised to reach the “change generation” through media; ESG promises to use capitalism to solve global challenges.
Both generated huge investor inflows based on comforting stories, rather than on solid evidence that they are capable of, or even genuinely interested in, reaching their stated goals.
Most fundamentally, both Ozy and ESG attracted a self-reinforcing cycle of investments and media hype by telling people what they wanted to hear, and by convincing them that what they wanted to be true was in fact possible.
It’s easy to blame Ozy’s collapse on the company’s founder and CEO, Carlos Watson. But such a narrow, individual-centric view of Ozy’s failure overlooks uncomfortable parallels across culture and society, everywhere media hype and too-good-to-be-true promises collide with ultra-wealthy investors who are flush with cash and looking for lucrative ways to “do well by doing good.”
You can read the full article in The American Prospect. Many thanks to David Dayen and the Prospect team for editing and publishing the piece, and to Beth L., Micael J., and Erin G. for reviewing early drafts and offering hugely helpful feedback!
https://www.nytimes.com/2021/10/01/business/media/ozy-media-carlos-watson.html