Forget ESG. Bring On The BS Index

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. [bold, links added]

The BS Index™ outlined here represents a sustainable revenue stream as we finally transform 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 Don’t Have to Worry About Climate Risk” Stuart Kirk from HSBC joked that he wasn’t a typical responsible investing officer as he “never used the word ‘journey’”.

He was suspended from the bank and received this BS-filled reprimand from his boss: “The transition to net zero is of paramount importance [sic] meaning to us and we will strive to help our customers along the way.”

Concerning the ESG complex, many people found HSBC’s response more offensive than Kirk’s words. The controversy has revealed a real divide between those who adopt BS and those who don’t.

We can take advantage of that. Some investors choose to go short in the index, believing BS has a habit of covering up a lack of real ideas. Others go long because they believe BS is associated with the hype that outperforms in a bull market.

The identification of BS is subjective but can be derived using several analytical frameworks, all of which can be used to charge companies and investors more fees. Just like ESG.

Measuring companies’ dependence on earnings adjustments will be a key indicator. Not all adjusted earnings are BS – but many are.

Sentiment analysis of salary calls, where executives’ words are fed through natural language processing software, will be critical.

For example, in a single response to a question about ESG last year, HSBC’s CFO referred to “the next industrial revolution”, saying “we want to be at the forefront with our customer base” and “we see it as kind of mission-critical”.

So of course HSBC is there. Who else?

Among the other top 100 companies in the world by market value, Berkshire Hathaway under Warren Buffett and Jamie Dimon’s JPMorgan probably won’t qualify: too much plain language and clear strategy.

BP will certainly not make it into the index. Chief Executive Bernard Looney boasted that the oil company was a “money machine” and would not slash UK investment in the event of an unexpected tax.

That fatal honesty helped raise the tax this week. BP investors would welcome more BS.

Apple, Amazon, and Alphabet are run by blander CEOs than their low-BS, iconoclastic founders. But boring doesn’t necessarily mean BS: analyzing whether they’re eligible for index membership will take some time (and money).

Tesla will also require significant debate. Elon Musk, who called ESG a “scam” last week, has built a mass automaker from the ground up. But he’s also dubbed his software for non-self-driving cars “Autopilot” and continues to pretend to bid 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.

h/t Rúnar O.

Read more at The Hitc via FT