Cooperative Economics | "Impact-First" Investing | Transformative Leadership

What’s wrong with ESG? A Carbon Collective asking better questions

Too often, I feel like we settle for easy solutions.

Part of what I love about Pope Francis and the Economy of Francesco, is the mandate to dig deeper, and ask more thoughtful, nuanced questions. And to seek solutions from young entrepreneurs wrestling honestly, deeply with the the interrelated challenges of climate, social equity, and the global economy.

I just met James Regulinsky, co-founder of the Carbon Collective, but in this 20 minute conversation, you’ll see the richness to the analysis he’s bringing to his investment advisory start-up.

What I’m compelled by is two things:

(1) the practical help Carbon Collective is offering me to divest from fossil fuels, while still trying to heed the conventional wisdom around investing broadly across the market via low-cost index funds

(2) the pro-active visioning of a zero carbon future, and which public companies — given their capital supremacy constraints — are doing the most on moving us towards a low carbon future.

Starting with Project Drawdown’s zero carbon future vision (it’s possible folks, we can do it, we have the solutions we need… is the gist), James and his Carbon Collective team have set out to build a practical way each of us can invest our money in that low carbon future — with their “Climate Index”.

They start by removing the four largest GHG emitting sectors of the economy from a normal index fund.

Then they select companies that are getting as close as is currently available (with traditional publicly traded companies) to this Draw Down / zero carbon future vision.

You can see the specific companies in their index here:

They include

  • circular economy,
  • zero carbon transportation, as well as
  • building efficiency and
  • clean energy folks.

Part of what animates me, is James’ clear thinking about root problems — specifically around the structural problems of finance.

One he names in this conversation is how he describes the “fiduciary responsibility” problem that financial advisors and investment mangers have.

He boils “fiduciary” down to “basically what everybody else is doing”. He tracks it back to “charting” — a practice that investment advisors have to take in their FINRA Series 65 — yet points out the lack of evidence for why this is how we predict the future.

As an engineer himself, it’s refreshing to hear James discuss his critique of the technocratic paradigm that I also hear Pope Francis consistently decry in Laudato Si and Let Us Dream among other writings.

James offers a glimpse of his thinking around agriculture, the nitrogen problem — alludes to our plastics problem — which helps me see the sophistication and nuance in the analysis and way Carbon Collective is honestly grappling with the depth of challenge.

The Problems with ESG

In the last third of the conversation, James points to discussions he’s had with ESG experts — and the structural problems that exist there. Companies self-report the data used for ESG (Environment, Social, Governance) scores. Companies need to show progress, so the way they track may evolve to show improvement over time.

These ESG reports become a kind of Public Relations / promotion tool for the company. The insidious part is that some prominent ESG funds include large oil companies and some of the worst polluters because of their strengths in governance or women on their boards.

James’ candor helps give hope that young entrepreneurs and economists may help us tackle what can consistently feel like intractable problems. Until we find leaders and solutions like James and the Carbon Collective.

This is our hope — as the Economy of Francesco — that we can point to more pioneering young people integrating the cry of the poor, the cry of the earth, and the structural problems of the global economy.

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