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The opportunity for value investors provided by ESG loons such as the Financial Times

By Tom Winnifrith | Wednesday 16 June 2021

Disclosure: I own shares in one or more of the stocks mentioned. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

It has always amazed me how the paper that purports to be the voice of business has, on so many issues taken a profoundly anti-business line.  The FT told us to vote for Blair, to join the EMU and the Euro and to oppose Brexit. Natch it is all in favour of a radical green agenda even if it cripples business in the West. And it cannot get enough of the sort of ESG porn that the FCA also jerks off on every day. Today it bigs up a story about the FTSE Russell Index threatening 208 companies with expulsion. According to the FT:

The companies represent 13.5% of the 1,546 stocks in the FTSE 4Good index series — designed to measure the performance of businesses with strong environmental, social and governance (ESG) practices — which is tracked by a range of exchange traded funds and investors such as the Japanese Government Pension Investment Fund, the world’s largest pension fund.

FTSE Russell has given the companies 12 months to meet its tighter climate-performance standards or face deletion from the indices.

“These tougher requirements reflect a groundswell of investor demands for companies to develop credible climate transition strategies and emission reduction targets,” said Arne Staal, chief executive of FTSE Russell.”

This is the first time FTSE Russell has applied a specific climate criteria to its 4Good series. At present, companies only need to meet minimum broad ESG standards. Companies involved in industries such as tobacco, coal and weapons manufacture are also excluded, as well as companies embroiled in “significant” controversies.”

I own shares in a tobacco company, Imperial Brands (IMB) in my pension. It is highly cash generative, pays a cracking dividend and has no need to raise fresh capital. I am looking for other stocks of that nature which may be dumped from the Russell Indices and sold off by woke young fund managers.

I note an advert I keep seeing on twitter from some financial services hucksters saying how important ESG commitment is in financial analysis. Chris bailey blathers on about the same nonsense on these pages.  The value of a company is the net present value of future cashflows.  That is not changed either up or down by how much its CSR executives spunk on diversity hiring, carbon emission reducing, gender awareness and black history initiatives. All that such initiatives do is to add to the cost base, so reducing the cashflows the business generates and thus its inherent valuation.

In the case of Imperial Brands it never needs to issue a new share to raise equity so if woke dullards want to keep selling that will not hurt the business. If it hits the share price then there will be value investors like myself who will benefit. Meanwhile snowflake ESG fans at Russell and the FT can go chasing tech stocks on PEs of 154 just because they are so ESG friendly. Let’s see how it all ends.

Russell has not named the 208 companies “at risk”. It would be good to establish what they are, which of them are:

a) not going to need to issue another new share
b) cash generative
c) going to focus on generating shareholder value by telling the wokesters to fuck off

And thus assembling a list of stocks to buy as the wokesters sell out of value and switch into overvalued virtue signalling companies.  

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