The crowd at Davos this year seems to have fallen in love with another social platform: ESG. (Ignoring the obvious criticism of a group that on the one hand pounds the table for climate change while leaving the conference on over 300 private jets) While we  admittedly have come late to the party on gauging the impact that ESG has had on investment behavior, what we don’t buy into is the fact that hype and loosely written pacts and agreements lead to faster and greater acceptance on the part of a society that has to live with and pay for these changes. Whether it is conflict minerals or the unacceptable use of plastics across a number of consumer markets, or a basic anti-carbon sentiment, the tide is clearly turning against allegedly the most “egregious” of sectors: the commodity/natural resources space. However, as with most trend shifts, there is a initial groundswell of support as the trend takes hold. However there is also much confusion about: how will it affect the consumer, who will ultimately pay for it, what is the governments role in monitoring its use, substitutability of use among non-controversial inputs/elements. The turning point within the seismic shifts that  we are talking about involve an immense amount of noise as industry, governments, special interest groups, media, and social media all conspire to create a distorted time line for acceptance of the new normal. We’ve already seen this with investment flows co-opting  the time frames for certain “eco-metals” like lithium and cobalt, and for companies like Tesla and others. What investors have to understand is that these anticipatory capital flows simply  create an entire new cycle of pre-adoptive over-investment. It is this over-investment  that ends up distorting the real fundamentals for some assets and asset classes,  and obscuring the possibly still attractive fundamentals for the others considered off limits by either the court of public opinion or select investment committees.


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