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Three short stories about ESG 📚

One is happy. One is sad. One will blow your mind.

This is edition 375 of Beyond The First Order, a premium daily newsletter that demystifies the hidden models, incentives and consequences of the most significant events across India and Southeast Asia

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Good morning,

How cynical are you when it comes to believing companies’ environmental, social, and governance metrics? Today’s BFO explores three positions. We also discuss how big tech is as acquisitive as never before, but striking small deals. The types that don’t have to be reported to regulators. And we discuss why football’s governing body wants to change the very thing that makes World Cup events so memorable: their rarity.

Three short stories about ESG

ESG stands for environmental, social, and governance metrics. It’s a way to get companies to behave and pay attention to all stakeholders (customers, environment etc) rather than just the shareholders who’re in it for money. 

The premise of ESG is that what’s good for the world at large will be good for the companies as well. And companies will be able to maximise their profits by not being selfish.

A lot of money has been flowing into ESG-related assets. A part of it is because it feels good to be doing good. Or at least, it looks good to be doing good. 

And another part of it, or a large part of it, is because research and real-world results have shown that companies that tend to pay attention to ESG deliver higher returns. And who doesn’t want higher returns from their investments!

Now, let’s get to the stories.

Story 1: Who benefits from ESG, really

Aswath Damodaran, Professor of Finance at the Stern School of Business, NYU is a cynic about what he calls the “goodness” gravy train in his latest blog post. And he makes some very interesting points, many of them around how he looks at value, pricing, and measuring ESG. So read his post.

But his scepticism (and rightly so) also extends to who benefits—or what he calls Cui Bono—from all this hype around ESG. 

His chart shows how everyone benefits except the stakeholders—investors, employees, customers, the environment. So it’s important to focus on that, too.

So here’s my short version of Cui Bono.

ESG Investment
Cui: Investors
Bono: While ESG is supposed to lower a company’s risk and thus, generate lower returns, the market misprices things often enough. And money can be made.

ESG Disclosures
Cui: Consumers
Bono: These disclosures get picked up by the media these days and could make it easier for sustainability-minded consumers to make their consumption decisions. 

ESG Disclosures
Cui: Employees
Bono: The US Securities and Exchange Commission may ask companies to disclose their “human capital”. This includes benefits and pay but more importantly, diversity and safety. Leading to a stronger voice for the underrepresented.

ESG Ranking
Cui: Environment
Bono: With all the noise around ESG, large companies don’t really want to look bad. Everyone wants to come out on top and ‘win’. So they’re likely to be more conscious of how their actions impact the environment. Even a little is better than nothing. 

Sure, ESG-investing, reporting, and everything else around in its current form is still fairly new. But it has to start from somewhere. 

Story 2: And whose responsibility is ESG

Can investors get companies to be good, especially when it comes to the climate?

Well, it certainly is in the interest of large asset managers like BlackRock, with trillions of dollars in the markets, diversified into many different companies, across sectors. Here’s Matt Levine:

If you own all the companies, and the seas rise and wash away all the companies, you will lose a lot of money. If all of your money is in oil companies you might say, well, sure, seas rising is bad, but I rely on these dividends so let’s sell as much oil as we can for as long as we can. But if you are a diversified owner of the world’s economy, you have to take a broader view. And so BlackRock is constantly talking about climate change, and explicitly arguing that it cares because of its economic interests as a long-term diversified shareholder.

And companies want BlackRock’s dollars. So you’d expect them to toe the line a bit.

But it may not always work

Investors managing more than $2.5 trillion have called on governments to compel companies and auditors to file financial accounts aligned with the world's net zero emissions target, a letter seen by Reuters showed.


It follows a recent study by Carbon Tracker and the Climate Accounting Project that found more than 70% of the world's heaviest-emitting companies did not disclose the full risks in their 2020 disclosures, with 80% of audits showing no evidence the risk had been assessed.

So we can all, as consumers and investors, call for better behaviour from companies. But if the policy makers or the governments don’t do much about it, then it could become an exercise in futility. 

Story 3: And finally, who could get hurt by ESG

For ESG investors, there’s one that’s worth paying attention to. All that interest in ESG is inflating the prices of companies which score high on the ESG scale. 

Now, the big daddy of banks—the Bank for International Settlements (BIS) or the central bank bank to the world’s central banks—has shot out a warning saying that a price-bubble is forming in ESG-related assets. And as far as comparisons go, Claudio Borio, the head of BIS’ monetary and economic department, is likening it to the mortgage-backed securities market. 

Remember the crash in MBS’ that led to a 60% drop in stock markets and threw the entire world into a recession in 2008? Yeah, that’s what ESG assets are being compared to by the BIS. Along with the dotcom bust of the early 2000s. And they’ve got a chart to drive home their point.

The ESG stories are just getting started. 

Big Tech is snapping up competition

Startups are getting a lot of attention. Both from venture capitalists and other tech companies.

Data from Refinitiv analysed by the Financial Times show that tech companies have spent at least $264bn buying up potential rivals worth less than $1bn since the start of 2021 — double the previous record registered in 2000 during the dotcom boom.


Since the start of the year, tech companies have inked a record 9,222 transactions to buy start-ups worth less than a billion dollars, about 40 per cent above the 2000 levels.

What will this all lead to? The dreaded M word—monopolies. 

Remember the email exchange that Facebook’s CEO Mark Zuckerberg had with his CFO in 2012?  It went (more or less) like this:

Mark Zuckerbeg: Should we buy smaller competitors like Instagram and Path?

David Ebersmen: Why should we?

Mark Zuckerberg: Well, a combination of neutralising a competitor and improving Facebook’s services. We’re looking to buy time even if other companies crop up doing the same thing.

45 minutes later.

Mark Zuckerberg: I don’t mean that we’re buying them to prevent competition, really.

Instagram was a billion dollar acquisition, so it had to be reported to the US regulators like the Federal Trade Commission (FTC). And then we got to see what really went on behind the scenes before that acquisition too. But, what if Facebook’s anticompetitive radar caught a company much before it even had a US$100 million business? 

Well, transactions valued at less than US$92 million don’t need to be reported to US regulators. So this new flurry of dealmaking is worrisome for people tracking the tech world and its monopolistic tendencies. Especially since deals below the US$92 million mark also hit an all-time high this year. 

Apple, Facebook, Amazon, Google and Microsoft made 616 acquisitions valued at more than $1m, more than 75 per cent of which included non-compete clauses for the target companies’ founders and key employees, according to the FTC report. At least 40 per cent of the deals showing the assets’ age involved companies that were less than five years old.

Regulators are going to have their plates full for the next few years.

Why Fifa wants a World Cup every two years

The first Fifa World Cup I watched was the 1998 edition, when I was 10. I remember the final vividly, when a tall Frenchman with a bald patch—a certain Zinedine Zidane—shocked the world by scoring two headed goals in France’s 3-0 win against favourites Brazil. The match was late at night in India; I was at a sleepover at my cousin’s place. We both stayed up and were mesmerised by Zizou.

Fifa World Cups are always memorable occasions, primarily because they’re so rare—once every four years. That’s a lot of time to wait for the best footballers in the world to lock horns. But that wait is mostly worth it.

This is why world football governing body Fifa’s latest proposal to reduce the frequency of the World Cup to once every two years has largely been criticised. 

Here’s Fifa’s argument: a biennial World Cup will result in teams around the world playing more meaningful matches rather than international friendlies, and it will also raise more money for grassroots development programmes. Fifa wants to play all international football in two month-long blocks: one in October, for the qualifying matches, and another in June-July, for tournaments. Currently, there are five windows for international football in a year. 

Fifa, under current president Gianni Infantino, has already expanded the number of teams in the World Cup from 32 to 48 from the 2026 edition. Now, Infantino wants to double the number of tournaments and give more teams a chance to participate. If you put it like that, it kind of makes sense. Just look at these numbers: 

Only 79 countries have played in a World Cup, 21 of those have played in only one and 38 have played in three or fewer of the 21 total competitions since 1930.


Fourteen countries have played in more than half of the 21 World Cups: Argentina, Brazil, Mexico, Uruguay and 10 from Europe. UEFA members have provided 12 of the 21 winners and there have only been two World Cup finals without a European participant — 1930 in Uruguay and 1950 in Brazil. Three of the last four World Cup finals have been all-European affairs.

It’s no surprise 166 countries voted in favour of this proposal when it first came up in May. 

The only staunch opponents have been Uefa and Conmebol, the governing bodies of football in Europe and South America, respectively. For context, no country outside Europe and South America has won the Fifa World Cup in its 91-year history. Uefa and Conmebol have threatened to boycott additional World Cups. Uefa president Aleksander Ceferin said a biennial World Cup would “dilute” the tournament.

Both sides have their arguments. But, at the expense of sounding extremely cynical, this whole debate is not really about promoting the sport and more inclusion. It’s about what makes the world go round: money. 

Doubling the number of World Cups would double Fifa’s revenue—at least theoretically. Because the World Cup is the single largest source of revenue for Fifa—out of the US$6.4 billion it made between 2017 and 2020, more than US$4.5 billion came in 2018, a World Cup year, according to The Conversation.

In comparison, Uefa is not that dependent on a single event. Along with the quadrennial European Championships, it also has other marquee club-level tournaments like the Champions League and the Europa League, which are both annual. As a result, Uefa earned US$12.5 billion between 2017 and 2020, and it was evenly spread across the four years. 

It’s therefore clear why Uefa is against doubling the frequency of the World Cup. If there is a World Cup every two years, Uefa would have to share the intervening summers with five other continental championships. And, possibly, the Women’s World Cup as well, which Fifa also wants to make a biennial event. 

Uefa’s European Championships is by far the most popular tournament out of the other continental championships and even the Women’s World Cup. Would seven tournaments slugging it out for viewership over one summer make sense?

Fifa is set to meet with all stakeholders—football associations, leagues, clubs, and players’ unions—next week to try and get everyone on board. The PR is in full swing, with Fifa releasing findings from an online survey it commissioned in July with more than 15,000 respondents in 23 countries. 

Fifa said a “majority of fans would like to see a more frequent men’s Fifa World Cup”; and of this majority, “the preferred frequency is biennial”. Fifa added that an expanded survey, with over 100,000 people in more than 100 countries, is currently underway.

Former Arsenal manager Arsene Wenger, who is now Fifa’s global development director, has even said that decisions could be made as early as December. But that’s looking extremely ambitious as things stand.

From rebel breakaway leagues to biennial World Cups, there’s no dearth of drama off the pitch in the world of football.

That’s it for today.

Don’t forget to write in with your thoughts and observations on the reshaping of businesses, societies, and economies. We will be back tomorrow.

Stay safe,
[email protected]

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