Betting With and Against Baizuo

Convergence of corporations will accelerate as political persecution becomes a growing concern and companies that dance the tune see capital inflows.

SA: New S&P 500 ESG Index Threatens Valuations Of Ineligible Utilities

For utilities, being seen as ESG-compliant is especially important. Utilities depend on public utilities commissions, politicians, and ultimately the public for their existence and continued success. In that respect, their reputation is more dependent on the goodwill of the public than other private corporations. Utilities that are perceived as ignoring social values can be easily punished through the rate-setting mechanism used by most states.

Up to now, definitions of what constitutes “responsible investing” have varied, and companies have been allowed to self-define whether they are ESG-compliant.

But given the growing interest in ESG, it is unsurprising that major indices are taking notice and creating third-party, independent benchmarks for index-driven investment products that quantify ESG factors.

1. At one end, ESG investing avoids companies that sell arms to terrorists or use slave labor. It's a fancy name for competence and low time preference. Over time, this becomes a ban on fossil fuels, carbon emissions, any company that doesn't implement full diversity over meritocracy.

2. You have to stay solvent longer than the Baizuo who have unlimited credit via the Federal Reserve. Politically vulnerable companies must be accumulated on lows, when political persecution is peaking.

3. ESG companies can outperform thanks to irrational investors and they can stay irrational for a long time because it's effectively a luxury tax. The best niche may be companies that will benefit from Baizuo screwups. Companies immune from political pressure because they are out of jurisdiction or have critical knowledge/assets that cannot be seized.

4. Mutual fund companies, hedge funds and other prominent investors will be bullied into ESG investing. Who wants to be a racistnazi investor? It will only take one or two large profile funds or investors to move first. The first movers will profit because they'll be ahead of the crowd.

5. China has its own ESG investing, it's called compliance with the CCP.

6. Foreign stocks may eventually be shunned. It's not hard to imagine ESG indexes/funds dumping Russian and Chinese shares. It would be interesting to see if any prominent Russiagaters own any Russian shares. Think they would survive a Twitter swarm, or would they fold and end their collusion with Russia? SJW moral panics will be a source of volatility.

7. Selling ESG will be profitable. Virtue signaling with capital investments will eventually be very costly.