This week the mania for Environmental, Social and Governance (ESG) issues in companies appeared to get totally out of hand. ESG is a ragbag of policies that companies like to support to show how socially aware they are and are in keeping with the times and the mood of the public. Here are a couple of examples of this mania:
A report by Cliff Weight on the Tesco AGM noted this response to a question: “Are you plainly making a token gesture to climate change? Answer. We have >350 people working on these issues. We are very conscious of our responsibilities”. What exactly can these 350 people be working on? It seems a ridiculously high figure even allowing for the fact that Tesco has about 2,700 stores in the UK. The cost of 350 people must be high and these people are simply an unproductive overhead which all good businesses try to minimise. They are not adding to sales or making the business more efficient.
I also read the Annual Report of Speedy Hire – all 212 pages of it printed on heavy paper to add to our postman’s load. For a company that is in the business of hiring out tools and equipment they found it necessary to spend 2 pages on ESG issues and how they are reducing carbon emissions by converting to electric or hybrid vehicles. Their new “innovation centre” depot in Milton Keynes is powered by 670 solar panels and is also “home to a wellbeing and wildflower garden, an 18-metre living wall and beehives made from repurposed hard hats”.
The Report also says: “Speedy has long been committed to sustainable growth and recognises the increasing stakeholder focus on climate change and the related environmental, social and governance considerations within its business. A new Sustainability Committee of the Board has been established to assist the Board in its oversight of the Company’s ESG strategy and support the Board on all sustainability matters. This will include supporting the Board’s ongoing evaluation of environmental risks and our reporting under the Taskforce for Climate Related Financial Disclosures”. So that’s more unproductive effort to divert the attention of management.
These are typical examples of what every Annual Report of public companies now contain with companies keen to demonstrate that they are in the vanguard of a social revolution. But does it really help to improve the returns to shareholders?
A report in the FT suggests there is some reaction against this mania with an article headlined “Shareholders back away from green petitions in US proxy voting season”. The article suggests shareholder resolutions on ESG issues are being defeated, particularly those that impose prescriptions on management although there is more support for improved reporting.
Perhaps if we are heading into a recession as some people believe, we may see a reduction in this needless expenditure of money and management time on unproductive issues.
Note that I hold no shares in Tesco or Speed Hire at the present time.
Roger Lawson (Twitter: https://twitter.com/RogerWLawson )
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