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ESG Scam Rates Slave-Using Chinese Firms Higher Than American Ones

china coal mining

Expecting publicly traded companies to do more than simply return shareholder value — their fiduciary responsibility — is a fairly new development in Western capitalism.

The idea that corporate leadership and shareholders should explicitly care about environmental, social, and corporate governance (known as ESG) issues beyond how they might affect the bottom line has been around for only about 30 years. [bold, links added]

But now, ESG investing has become a big driver in steering capital to corporations deemed to be good stewards of subjective principles.

By 2025, financial management firms that claim to invest with ESG principles are projected to account for $50 trillion of a total global value of $140.5 trillion — more than a third of managed investments.

But is ESG investing trustworthy? Does it really do what it claims to do?

MSCI is one of the world’s largest investment support services firms, with $2.1 billion in revenue. It offers an ESG rating service.

I noticed that my Charles Schwab account recently started to display MSCI’s ESG ratings alongside that of the more traditional rating services — services focused on a company’s profitability.

Comparing U.S. and Chinese Companies’ Ratings

Curious, I looked into the rating of a firm I own some stock in: Texas-based Brigham Minerals. Brigham looks for land that could produce oil and gas and owns mineral and royalty interests in 7,909 oil wells and 688 natural gas wells in West Texas, New Mexico, Oklahoma, Colorado, Wyoming, and North Dakota.

MSCI rates Brigham Minerals as a B, the sixth lowest of seven ratings that range from AAA to CCC, labeling it a “laggard” in the industry with an overall score of 2 out of 10.

I previously wrote about ESG investing’s blind spot for China three years ago in Fox Business, pointing out that investment firms playing in the ESG space were also bullish on China — a nation with terrible air and water pollution (the “E”), horrendous human rights abuses (the “S”), rampant corruption, opaque accounting standards, and rule of law only at the forbearance of the Chinese Communist Party (the “G”).

Not expecting the financial industry to have changed for the better, I looked up three China-based energy companies and compared them to Brigham Minerals.

They were Xinyi Solar Holdings, China Resources Gas Group, and China Coal Energy Company. All three beat the American energy company in their overall ratings.

Buying Into CCP-controlled Enterprises

Now, it’s important for investors to understand that you really can’t own shares in a Chinese corporation.

When you buy shares in a corporation based in China, you’re really buying American Depositary Receipts (ADRs) that represent shares issued by companies in the People’s Republic of China.

As such, your ownership rights are more theoretical than real and are subject to the whims of the Chinese Communist Party.

Further, many Chinese firms that have ADRs traded in the United States are themselves subsidiaries of state-owned enterprises — meaning that if you buy these ADRs, you are directly investing in an entity fully controlled by the Chinese Communist Party.

As an example, China Coal Energy is 58.36 percent owned by China National Coal Group, a state-owned enterprise. China Coal Energy owns 12 coal mines, 13 coal-processing plants, five coking plants, four coal mining equipment manufacturing plants, and two mine design institutes. They’re really into coal.

That makes sense, as coal is China’s largest source of energy — with the PRC having on the order of five times the size of the U.S. coal powerplant fleet in operation or in construction.

MSCI rates China Coal Energy as “BB” — one step better than Brigham Minerals, with an environmental rating of 4.7 of 10 compared to Brigham’s 0.8, a social rating of 4.2 compared to Brigham’s 3.5, and a governance rating of 2.2 compared to 6.4 for the American firm.

Overall, China Coal rates 3.1 out of 10 compared to 2 for Brigham. …snip…

That a firm in China that relies on slave labor for key portions of its supply chain has a better social score than an American firm that pays landowners who freely sell them their mineral rights betrays an upside-down ethic where freedom is slavery and ignorance is strength.

Of course, that hasn’t stopped 174 institutional owners from investing in Xinyi Solar, among the largest being JP Morgan, Invesco, and Vanguard.

h/t RO

Read rest at The Federalist

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