Opinions

The ESG Hypocrisy In The Western Investment Management Industry

In this guest article Omar AbouZeid discusses the blind search for high yield by firms claiming to invest ethically. In reality many of those firms invest in perverse high yielding investments in countries which lack environmental, social and healthy governmental structures and policies.

As per economics 101, there is only one thing that firms are after: Maximizing Profit. The ESG investing (investing to influence better environmental, social, and governance practices) has recently emerged as a marketing tool of the global investment industry, which seems to have been profitable. However, it’s the ESG hypocrisy and not ESG investing that yielded such profits.

We all know that Western investment management firms have been rushing after high yields and high profits rates in the so-called emerging markets, and most of their “investments” have been in government bonds (local and hard currency), some in equities, and less in corporate bonds. Even though the ESG-indicators have been deteriorating for many of these “emerging markets”, the Western investment firms have kept speculating on their assets with disregard to ESG underperformance in these countries. And in many cases, the Western investment firms are by undertaking these transactions incentivizing financial schemes that, through excessive money printing inflation and exchange rate deterioration of the target country, expropriate wealth from the masses of these countries.

Let me illustrate this ESG hypocrisy with a salient example I am familiar with. The Western investment industry has rushed to investments in Egypt’s government bonds since the interest rate rose substantially in late 2016, while the Egyptian government, which is a product of a military coup that took place in 2013, is on one of the ruthless ruling regimes of our time, evidenced by several standard quantitative indicators like those presented by World Governance Index, Corruption Index, and World Justice Project, where Egypt’s ranks in all these indices have been deteriorating in the past years. Yet, Western investment management firms, who claim that ESG is a priority of their business model, have been lusting after the high interest rates of Egypt’s government bonds. This clearly disregards the deterioration of the human experience as an outcome of supporting Egypt’s dictatorship through these “fixed income investments”.

I support my claim by reporting a personal experience back in 2016 when I worked in the asset management industry in the Netherlands. I met with several senior portfolio managers who always spoke highly of the potential of “Egypt fixed income investments”, and one senior portfolio manager of a major Dutch asset manager located in Rotterdam, told me that “My longest position is currently in Egypt local currency bonds”. Another senior portfolio manager from one of the largest asset management firms in The Hague confirmed that they are heavily invested in the same asset class in Egypt. Nevertheless, these firms, and many others who followed suit, have large ESG-related logos whenever you see their names. Other notable countries whose governance has been deteriorating, nevertheless, have been “emerging markets hot spots” of fixed income”investments” are Brazil, Peru, Russia, Turkey, Columbia, and Saudi Arabia among several others in Africa, the Middle East, and Asia.

ESG hypocrisy has been the fashion trend of the day in the global investment industry in recent years and they have been used by investment management firms as a marketing tool to enhance their public image and attract the stray money of institutional and individual investors.

They lend dictatorship and corrupt governments around the world, and they deliberately dismiss that they are financing political repression, resource expropriation, human rights violation, corruption, and overall political and economic degeneration.

If you have doubts about my claims, please visit the following websites and check the trajectory of the different governance indicators’ scores of the “emerging” countries I mentioned, and then check the data on foreign portfolio investment flows and origins in them.

https://www.transparency.org/en/cpi

https://datacatalog.worldbank.org/dataset/worldwide-governance-indicators

https://worldjusticeproject.org

Disclaimer: These comments on latest gold miners are of Omar AbouZeid personally. The comments are his personal opinion and thus does not necessarily reflect his employers opinion on the topic.

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