Gold rush or mine avoidance, do you dare to quantify your long-termism?

Caroline 2021-12-06

Gold rush or mine avoidance, do you dare to quantify your long-termism?

There is no such thing as a free lunch.

Almost everyone has heard this phrase.

The man who first uttered it was Milton Friedman, a Nobel laureate in economics and a great leader in the neoliberal school of thought.

Friedman's parents were first-generation immigrants who worked in American sweatshops, while he himself became a believer in laissez-faire capitalism after his studies.

In his advocacy, government and society should not interfere with business in any small way. Minimum wage guarantees? Not needed. Environmental pollution? Whatever the business, as long as it doesn't break the law. Even if it's a sweatshop like his parents experienced, Friedman thought what's the point of bothering with it when it's a matter of mutual consent between the workers and the capitalists?

In 1970, Milton Friedman published the famous article "The Social Responsibility of Business is to Increase its Profits" in the New York Times. Increase its Profits" (The Social Responsibility of Business is to Increase its Profits). By reading the title you can guess the core argument that the social responsibility of business is to maximize profits while complying with the law.

This view, which sounds quite incredible today, took the high ground of public opinion back then.

"In the 1970s, the U.S. economy was in "stagflation" due to the devaluation of the dollar and the increase in oil prices - both stagnant production and inflation. and inflation. Anyone with a little economics knowledge will know that production stagnation and inflation generally do not coexist, but in the 1970s it really happened. The monetary and fiscal policies that had worked so well failed.

How to get out of this unique economic crisis? The entire Western world was at a loss.

The world was at a loss.

Reagan and Thatcher respectively in the United States and Europe to implement the Friedman as the representative of the neoliberal school of thought - to give the market absolute freedom, to give the maximum degree of unrestricted business. In this way, they succeeded in stimulating market dynamics and achieving economic recovery. Friedman became famous in one battle, ascended to the hall of fame and was regarded as a master.

But, like economic cycles, human thinking also cycles in a cycle.

After forty years of recovery, development, prosperity, and then a new economic crisis, Friedman's view went bankrupt.

For forty years, "laissez-faire" prevailed, and regulators retreated again and again in front of the market. The artificially deregulated financial system allowed Wall Street and the real estate developers to collude and weave a huge real estate bubble in the United States.

Eventually, the subprime mortgage crisis erupted and an economic crisis that swept the world came crashing down.

However, the bankers hundreds of millions of dollars in year-end bonuses have long been in the bag, Wall Street is not only not a big brother responsible for the crisis, but also "big but not down", enjoy the United States government bailout of huge amounts. But the American people are obviously not so lucky, and not so much bargaining chips, have lost their homes and pension savings.

An economic crisis ended a 60-year bull market in the U.S. housing market, and completed an important leap in corporate governance and asset management for humanity.

Obviously, the characteristics of modern business, especially the development of the Internet and the new economy, have given rise to numerous mega-corporations. Their success benefits from a large amount of social resources, and their prosperity binds the whole society. The idea that companies should be socially responsible is gradually gaining popularity and has been condensed into three aspects in a long discussion, one word - ESG (Environmental, Social, and Corporate Governance) .


The human perception of ESG can be divided into three progressive stages.

First, ESG is the moral responsibility of business.

There is no doubt about it.

Zhang Ruimin, an entrepreneur of the old generation, said that there is no successful enterprise, only the enterprise of the times.

The biggest factor that makes an enterprise is often the era in which it is located. Urbanization, the achievement of a number of real estate developers, 3G/4G/5G achievement of Huawei, Apple. The development of the Internet and logistics has made e-commerce. The trend of electric cars has made Tesla and Azera the new power of car-making.

The greater the capacity, the greater the responsibility. As the bearer of the dividends of the times, of course, it is more important to maintain the sustainable development of the times.

In the second step, social resources gradually realize that ESG is a kind of long-termism.

After the subprime crisis, it became a consensus that enterprises should talk about social responsibility. Immediately after that, a most famous CSR crisis broke out - Apple's bloody supply chain.

It was the New York Times again.

Multiple issues and multiple pages, disclosing the problems of Apple's supply chain - there were workers who ended up jumping off buildings because of the loss of iPhone prototypes, small suppliers with hexane instead of alcohol leading to worker poisoning, and the long-term safety hazards of the Chengdu factory that eventually swallowed the lives of four workers in an explosion.

Apple is not legally responsible for any of these problems. Even Apple itself might not have known about them if not for media reports. After all, Apple only purchases products and services from suppliers, and cannot get a handle on what is happening in its factories.

But Apple's response was not one of justification and stonewalling. Instead, it apologized, took responsibility, re-evaluated and re-screened its suppliers, and from that year onward issued an annual sustainability report on suppliers using ESG as the standard.

In fact, this did not drag down the performance, but rather reshaped the brand image and became a valuable asset for Apple. Today's smartphones are a cluster of smartphones that compete in terms of functionality, but privacy and environmental protection are still Apple's unique brand labels.

Another comparable example is Wal-Mart.

Walmart sells guns all year round (which is legal in the US) and insists on not doing background checks on gun purchasers (which is costly). This is a classic violation of ESG principles. Sometimes public pressure is so overwhelming that Wal-Mart suspends this controversial business. But whenever the performance slumps, or, as this year, because of the epidemic out of control U.S. civilian insecurity soaring, the demand for guns soars, Wal-Mart will resume gun sales.

Wal-Mart is the king of retail in the last generation, the Fortune 500 No. 1 for seven years in a row, and the founder Walton is the former richest man in America. In fact, Wal-Mart started e-commerce in 2000 (almost at the same time as China's Alibaba), but still missed the Internet era and gave up the position of retail king to the later Amazon. In many business analysis, the strategic myopia exposed in the gun sale issue is one of the cruxes HUAZE.

In the third step, precisely because of the first two, ESG can be applied to asset management and become an important indicator for evaluating investment targets.

It is also well understood that neglecting social responsibility and taking risks for short-term profits often means that the underlying company already has major hidden problems.

Comet Pharmaceuticals' 30 billion yuan financial fraud is a big thunderbolt for A-shares in 2019. In fact, at the end of 2018, the Min Sheng (MSCI) has already downgraded the "ESG rating" of Kangmei, from B to CCC.

At this time, there are still six months to go before the lightning, which could have been avoided if investors and asset managers had learned to use ESG indicators.

On the flip side, companies that pay attention to ESG often mean better corporate governance and have the investment value of long-term holdings. A 2018 study by Northwestern University's Kellogg School showed that a focus on corporate sustainability (as measured by ESG) can actually boost stock prices - green, sustainable companies may not generate profits right now, but they can ride out sudden industry changes, such as newly introduced pollution regulations or consumer-driven demand for environmentally friendly products.

ESG investing is no longer a moral principle. By the end of 2019, there were 56 U.S. ESG-based ETF products with a total size of $15.97 billion, up 173% compared to 2018 and growing strongly for the fourth consecutive year.