To: S&P, BlackRock, McKinsey, Accenture and other potential partners
From: ESG Boutique
Subject: New scheme
The jig is up for ESG. Regulators are swarming. Investor enthusiasm is waning. Executives are revolting. For the armies of asset managers, data providers, consultants and advisers that have sprung up in the past 10 years this is an existential threat.
Here is our solution: pivot to bullshit.
The BS Index™ outlined here represents a sustainable revenue stream as we finally turn this infinite resource into a tradable asset class.
An exchange last week revealed the urgent need for the pivot, as well as the first candidate for inclusion.
In his provocative speech, “Why investors need not worry about climate risk”, HSBC’s Stuart Kirk joked that he was not a typical head of responsible investing as he had “never used the word ‘journey’”.
He was suspended from the bank and received this BS-filled rebuke from his boss: “The transition to net zero is of upmost [sic] importance to us and we will strive for ways to help our clients on this journey.”
Worryingly for the ESG complex, many people found HSBC’s response more objectionable than Kirk’s words. The controversy has exposed a real divide between those who embrace BS and those who do not.
We can exploit this. Some investors will choose to short the index, believing BS is used to paper over an absence of real ideas. Others will go long, believing BS is associated with hype, which outperforms in a bull market.
Identifying BS is subjective but can be inferred with the help of several analytical frameworks, all of which can be used to charge more fees to companies and investors. Just like ESG.
Measuring companies’ reliance on adjustments to profits will be a key indicator. Not all adjusted earnings are BS — but many are.
Sentiment analysis of earnings calls where executives’ words are fed through natural language processing software will be crucial. For example, in a single answer to a question on ESG last year, HSBC’s CFO referred to “the next industrial revolution”, said “we want to be front and centre of that with our customer base” and “we view it as sort of mission critical”.
So HSBC is in, of course. Who else?
Among the rest of the world’s top 100 companies by market value, Berkshire Hathaway under Warren Buffett and Jamie Dimon’s JPMorgan are unlikely to qualify: too much plain speaking and clear strategy.
BP will certainly not make the index. Chief executive Bernard Looney bragged that the oil company was a “cash machine”, and that it would not reduce UK investment in the event of a windfall tax. This fatal honesty helped bring on the tax this week. BP investors would welcome more BS.
Apple, Amazon and Alphabet are run by blander chief executives than their iconoclastic low-BS founders. But bland does not necessarily mean BS: the analysis of whether they are eligible for index membership will take some time (and money).
Tesla will also require significant debate. Elon Musk, who slammed ESG last week as “a scam”, has built a mass carmaker from scratch. But he has also named his non-self-driving-car software “autopilot” and continues to pretend he’s bidding for Twitter.
Salesforce, under thirsty founder Marc Benioff, is a prime contender for inclusion with his vanity Time magazine purchase, prominent Davos presence and “Ohana” schtick.
Accenture will make the index. An executive told a recent investor meeting: “One of my grand ambitions is to bring creativity to the boardroom on equal footing and influence with technology and intelligence because creativity is a powerful amplifier, and it’s code for what’s possible and what could be and what should be.”
I am sure that as a potential partner in this initiative, Accenture and the rest of you can appreciate the possibilities of the BS Index. Please accompany us on this exciting journey.