Last year, I argued that ESG was the most overhyped, and oversold concept in business (, and heard from people who felt I was missing its good points. After a year of searching, I still cannot find them..
Measuring goodness is difficult to do, which is why services disagree on ESG rankings/scores. It will not get easier over time, because we have different value systems. Your measure of "goodness" will not match mine.
The evidence on ESG's effect on value is muddled. A stronger case can be made that companies should not be bad, (because they will face higher funding costs and failure risk) than that they should spend money to be good.
If good firms have lower funding costs, arguing that investing in good companies will earn higher returns is internally contradictory, and incoherent, since the link between ESG & returns is more a reflection of pricing than it is of how ESG affects value.
In the old model, companies focused on business, investment funds on returns, and shareholders chose how much, and who to give to, in society. In the ESG model, companies and fund managers make those choices instead. Not clear how or why society benefits..
Why is ESG being sold so aggressively? Because accountants, measurement services, fund managers & consultants are on the ESG gravy train, with stockholders & taxpayers paying. Corporate CEOs are buying into ESG, because it makes them accountable to no one.
Bring your moral code into your own business & investment decisions, but investing other people's money to advance what you view as "good" is hubris. Accept that being good is more likely to cost & inconvenience, than to help, you, and be okay with that.

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More from @AswathDamodaran

1 Sep
Can governments affect company value? Of course, in both positive and negative ways. As the Chinese government cracks down on its big tech companies, I revisit the many consequences of government action or inaction for the value of a company.
As the Chinese economy has risen to become the second largest in the world, its equity markets have also risen, with Chinese tech taking the lead in the last decade. Tencent & Alibaba sit on top of China's market cap tables at the start of 2021.
The biggest Chinese tech companies range the spectrum in terms of business, but they all (a) benefit from big markets (China + Disruption) (b) are tailored to Chinese consumers (c) are corporate governance nightmares and (d) have Beijing as a key player.
Read 6 tweets
24 Aug
We are drowning in data, sometimes manipulated and often misread. I am not a statistician, but that did not stop me from creating my own version of a statistics class, with a finance/investing twist. Webpage: YouTube Playlist:
Session 1: is an introduction to the components that make statistics the data science, from sampling to regressions. Full disclosure that I may be ignoring what some statistics classes view as indispensable, but so what?
Sessions 2 & 2A: Most statistical sins are in the sampling phase, where bias, explicit or implicit, permeates the process and poisons conclusion. The notion that researchers are unbiased and objective is myth, and their priors drive their conclusions.
Read 7 tweets
3 Jul
As investors & companies globalize, we recognize that risk varies across countries for many reasons, and the need to incorporate that "country risk" into decisions. My seventh annual update on country risk is here:, with data here:
1. Corruption: The roots of corruption don't lie in cultures, but in systems (over regulated regimes, with underpaid rule enforcers), but corruption is an implicit tax, and its effects varies widely across the world. Paper: & data: Image
2. Violence: Operating a business in the midst of violence, from within or outside, is riskier than in peace. The threat of that violence is higher in some parts of world than others. Paper: & data: Image
Read 8 tweets
24 May
While US stocks have done well, so far, in 2021, the market is caught between two forces, a stronger than expected economy as a positive and worries about inflation as a negative. After a decade of benign inflation, are we ill-prepared for the latter?
Expectations that inflation will rise are becoming more broad based, as can be seen in both a bond market based measure (T.Bond - TIPs) and consumer surveys.
Inflation is currency specific, & differences explain why interest rates vary across currencies and exchange rates. Here are expected inflation rates for 2021-26, by country, from the IMF. Given the noise in measuring inflation, take with a grain of salt!
Read 8 tweets
11 May
The second leg of the Biden tax plans targets the "rich", with a rollback in the 2017 rate cuts in the highest tax brackets and a doubling of tax rates on capital gains for the 0.3 percenters (making more than $ 1 million in investment income).
If historical stock returns in the US are adjusted for dividend and capital gain taxes, the tax impact wipes out almost 95% of the cumulative payoff. Paying a lower tax rate on dividends & trading less often reduces but does not eliminate the pain.
Prior to the tax rate change, investors are pricing stocks to earn an annual return of 5.73%, pre-taxes, and an after-tax return of 5.01%, with the current tax code.
Read 6 tweets
23 Apr
The equity risk premium (ERP) is the price of risk in equity markets, the receptacle for all our fears. Each year, since 2008, I have updated a paper that includes everything I know about ERP. (Warning: It is 130 pages long...) Here is the 2021 version: Image
As the ERP rises and falls, it drives what investors are willing to pay for stocks, and what companies demand as hurdle rates. Views on whether it is too high or too low determine whether stocks are collectively under or over valued. Image
In practice, most analysts and companies estimate equity risk premiums by looking at the past (historical data), but that is not only backward looking, but it yields static and noisy estimates of the ERP, even for a market like the US, with a long history. Image
Read 6 tweets

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