What is Macro ESG?

greg beier macroESG.com 07 may 2020 22:00 gmt 

Introduction

This past weekend, the greatest investor of all time, Warren Buffett, reported a $54.5 billion-dollar mark-to-market loss on the Berkshire stock portfolio due to the exogenous risk of a pandemic shock to the US.

The world has crossed a tipping point. With increased globalization and industrialization, massive shocks like the one we are in, are going to become more common and intense.  Clearly, evaluating an investment’s value or growth prospects requires a new way of looking at things.

What is Macro ESG?

Macro ESG analyzes the global power dynamics of markets, politics, and technology interacting within the tightening constraint of a sustainable future.

I believe this process will have, by far, the single greatest impact on asset prices for decades.

Macro ESG is the synthesis of systemic and exogenous.

What is Macro ESG trying to solve?

Most folks in the ESG space are interested in a piece or a section of the puzzle (e.g., rating companies, climate risk, etc.) whereas Macro ESG is interested in the whole puzzle, which becomes more difficult because the big picture is so dynamic that even the puzzle’s image and shape changes.

Macro ESG seeks to understand what drives this process.

Is Macro ESG quantitative?

While a fan of great primary data, this is a deep qualitative analysis of the drivers of change in the Keynes tradition. 

When investing and trading in real-time with a global outlook, penetrating qualitative insights are required to cut through the fog of uncertainty and distill compelling risk-reward pictures from voluminous data.

What is your edge?

A non-ideological, fact-based analysis of global power dynamics that drives major changes today.

What are your principles?

1.  Stakeholders either compete or cooperate.

2. Crisis brings cooperation, ease brings competition.

3. Elites are competing more intensely than ever.

4. The interdependencies of global power are markets, politics, and technology.

5. As the world pushes “global boundaries” of a sustainable future, we will be forced to listen to Nature’s overwhelming feedback.

6. Macro ESG is the global power dynamics of markets, politics, and technology within the tightening constraint of a sustainable future.

What is your process? 

1. Read. Read. Read.

2. Track news and markets. Notice when the pattern of events doesn’t make sense.

3. Detect an anomaly and then dig into the facts. Study it.

4. Build a picture of the stakeholders, their incentives, and how things likely work.

5. Develop a forecast. Define risk-reward and position size.

6. Implement and study mistakes.

What is your long-term outlook? 

Things will get worse before they get better as global power competition is increasing, which will create conflicts and environmental problems. Eventually, it will get so bad that we will all have to join together and fix our sustainability problems. Markets will be bumpy till that point.

Doing research on pandemics, I have come to admire Dr. John Snow who through clear thought and empirical analysis discovered that the source of a London cholera epidemic was waterborne and not carried in the air (or the “vapors” or “miasma” as it was then called). Too much finance thinking today reminds me of miasma which was an empty assumption. Macro ESG is a good way to get out of that.

Who can benefit from the Macro ESG outlook?

1. Global macro.

2. Traditional ESG fund managers that are simply too busy following their 50-80 names to have the time to consider the bigger picture.

3. Leveraged concentrated niche funds could use Macro ESG as radar for exogenous events that their analysis might miss.

4. Surprisingly, Macro ESG may find its métier in supporting pension funds to stay on the right side of long-term trends.

What is your primary weakness as an analyst?

I can be way too early in anticipating a big change, so my biggest weakness is staying in touch with the idea while it takes a year (or more) for the set up. I have to be patient and sit tight – sometimes even a market cycle, before it is ready to happen.

Further reading:

On my other blog , please read the posts about an oil glut from September 15th of last year, a massive financial and economic hit to the US because of virtually no virus testing on February 12th, and selling all equities on March 5th.