The outgoing manager of the Scottish Mortgage Investment Trust has said ESG frameworks are "ill thought through" and “profoundly damaging” to any attempts to change companies for the better.
Writing in Baillie Gifford’s Trust magazine, James Anderson, joint manager of Scottish Mortgage Investment Trust, said these frameworks are not just gestures or “ill-thought through metrics and distractions, “...in aggregate they are profoundly damaging to the prospect of changing the corporate sector – even the world – for the better.
“If we believe, demand and enforce a standard template for all companies, in all industries and in all countries then we will have an arid, unimaginative, fearful and rule book-driven world,” he added.
Anderson announced earlier this year that he will leave Baillie Gifford in April 2022 after more than two decades running the Scottish Mortgage Investment Trust.
Anderson’s co-manager, Tom Slater, will continue as manager after Anderson leaves, and Lawrence Burns has been promoted to deputy manager.
Anderson said it was “wonderful” that fund managers have noticed that serious capital allocation extends beyond the consideration of short-term financial returns.
“But opportunity is fast turning into tragedy,” he added.
“Morality cannot be outsourced...True long-term impact for the good of economies, societies and the earth cannot be anchored in the diktats and banal mismeasurements of the ESG dogmatists, who have come to enjoy such unjustified influence.”
Anderson used the example of the trust’s investment in Tesla, which Anderson said has “turned the automobile industry in an increasingly sustainable direction”.
But using “standard metrics”, he said, showed the firm “pollutes”, has ill-defined future metrics and takes up a “fair portion” of Scottish Mortgage’s carbon exposure.
“I think this is dangerous rubbish,” Anderson said.
He said the relevant metrics by which Tesla should be judged were not the amount of carbon the firm emits, nor the gap between what it emits versus what a traditional manufacturer would.
The firm also shouldn’t be judged on the emissions removed or the pollution deaths avoided, “but all those plus the resultant benefits of its transformation of the rest of the industry”.
Furthermore, he highlighted Tesla itself disobeyed many governance metrics, and that at times the firm had “painfully clashed” with Musk over issues of board oversight.
Anderson said Baillie Gifford’s support had made Tesla’s success easier, which had made more of a societal contribution than all the “invisible ESG measures and pontificators” have ever done.
“I do not believe that Tesla would have changed the world for the better if it had been a normal company paying heed to the standard governance codes,” he said.
He added the number of companies that possess the ability to change the world for “what we trust is the better” was very small, with an even smaller subset of those driving investment performance.
“To repeat and conclude: what we desperately need is the courage to find our own less travelled paths to investment and societal progress, not the supine adherence to questionable and superficial metrics determined by others.”