'The dubious appeal of ESG investing is for dupes only'

Some months ago I took a deep breath and moved my pension from a traditional pension provider into an investment fund. I wouldn’t call myself a skilled investor. I didn’t look very hard at the options, but before choosing which fund to put my money in, I did glance at the biggest investments within each of the available funds to see what where the money was going. I was shocked when the first fund I looked at had for its largest single investment British American Tobacco. I couldn’t believe it. Instead, I chose an ESG (ethical, social, and governance) fund, that invests only in companies with these goals. Was I wrong? According to the FT, I am “a dupe”. 

In an opinion piece in the FT, 24 August 2020, entitled “The dubious appeal of ESG investing is for dupes only”, Robert Armstrong gives some reasons for rejecting ESG investing. In so doing, he reveals some of the values at the core of the Financial Times.

 Why not invest in ESG funds? Because, according to Mr Armstrong:

1. They do not provide “adequate” returns
2. They provide cosmetic, rather than real change
3. Behind ESG and stakeholderism lies a dangerous idea: Shareholders’ economic interests and the social good always harmonise over the long run.

Armstrong’s argument is that since economic interests and social good do not always harmonise, there is no point in seeking for them ever to harmonise.

First, let's confirm the terminology. “Stakeholderism”, also referred to in the article as “stakeholder capitalism”, is defined in Investopedia as follows:

Stakeholder capitalism is a system in which corporations are oriented to serve the interests of all their stakeholders. ... Supporters of stakeholder capitalism believe that serving the interests of all stakeholders, as opposed to only shareholders, is essential to the long-term success and health of any business. 

Mr Armstrong has a PhD in philosophy, so you would expect him to know how to argue a point. He is also chief editorial writer, so you can assume he offers a fairly standard FT approach. Here he argues that companies ultimately make decisions for shareholders, not stakeholders, and this commits them to making short-term policies. As he memorably states:

 it is obvious that shareholders’ and stakeholders’ interests can conflict. If they did not, there would be far fewer lay-offs announced and far fewer oil wells drilled.

For some perhaps unconscious reason he describes drilling an oil well as a necessary short-term activity for a company. I know it is a common phrase, used without thinking, but drilling an oil well is the very thing that investors in ESG companies hope will not happen. We don’t drill oil wells any more, Mr Armstrong. I would suggest the goals of ESG investors (certainly my goals) are as follows. I want companies to carry out their activities for the long term. I mean by that a sustainable activity, not one that results in the destruction of the planet (the example of Rio Tinto destroying a 46,000-year-old Aboriginal cave in Australia to expand their iron ore mine springs to mind). Perhaps Mr Armstrong regards that destruction as an understandable and necessary short-term activity that companies will do.

In any case, he states, we have “democratic action and the rule of law” to fall back on, in case companies misbehave. Although nobody lost their job at Rio Tinto after this environmental disaster, so perhaps there is no law against destroying cultural heritage. In any case, the law is usually a few years behind the latest commercial practices. Perhaps that explains why the FT regularly reports on the activities of tobacco companies and praises them when their profits increase – see, for example, “BAT beats profit forecasts as US stimulus bolsters sales” (30 July 2020). The “US stimulus” they refer to is government unemployment support during the coronavirus pandemic, which “has meant smokers have not been forced to switch to cheaper brands, smoke less or quit”. Perhaps if you follow Mr Armstrong’s principles, than companies like BAT should carry on doing what they do, and continue being one of the biggest dividend payers in the FTSE 100. You would be a dupe to think otherwise. 

Postscript: about a week later, the Chief Executive of Rio Tinto was sacked. 

The English Terraced House (Stephan Muthesius)

At the very mention of the word “house”, I start asking questions. After all, houses are quite close to our hearts – we all grew up in a house. How does a house influence the way we live? Do people in big houses and in bungalows lead different lives? One of these questions that I ask whenever I see a new housing development is, why is there a preference today for detached and semi-detached houses over terraces? In some places today (Oxford and Cambridge) terraced houses are wildly fashionable, in other places (Hartlepool, Newcastle) they are slums to be removed and all traces obliterated.

So I turned to Stephan Muthesius, The English Terraced House (1984), with great anticipation. Will it answer my questions?

Sadly not. But is it fair to condemn a book so full of detail simply because it doesn’t ask the same questions you ask? Well, I think so. Especially because this book not only fails to answer the questions I had, but often fails on its own terms. Mr Muthesius has written about 100,000 words, so he should have space to answer some at least of these questions. And one question I have is why a book on the English Terraced house uses the American term “row house” when the book doesn’t consider American examples. 

Instead, what we have, although wonderfully detailed, is rather complacent, and uncritical. For many people, the horrors of industrialisation are revealed most starkly by row upon row of grim terraced housing imposed without feeling on Welsh valleys or Peak District hills; but there is little condemnation here. 

By concentrating on the English terraced house, the author fails to compare and contrast to determine what is distinctive about English development. It would be good to understand why so 19th- and early 20th-century housing in Danish towns is mainly flats, compared with terraced housing in England. Worse, he accepts without question many general assertions about things English that have no place in a scholarly essay: 

Architects and planners from abroad still come to study the English set-up, as they have done for the past hundred years. We have those better dwellings because we seem more capable of a more judicious, small-scale kind of planning than other countries.

 Notice the imperceptible shift from the third person to “we”. Muthesius doesn’t mention that his own father was one of those “architects from abroad” who became an evangelist for the garden city in the early years of the 20th century. This is another problem with The English Terraced House. Muthesius senior wrote about “The English House”, not “The English Terraced House”. Much of what Muthesius writes about – speculative development, building controls, the ‘ideal’ family dwelling – is not restricted only to terraced housing. The debate, and the results, were about housing generally, including many different building types. In fact the garden city development at Letchworth include few if any terraced houses. But all this is rather incidental to Muthesius, who devotes much more space to small-scale changes in style within the terraced house, as if it were unconnected with other types of accommodation. For the detailed information we are grateful, but it only represents a part of the story. There is no mention of the systematic development by Oxford and Cambridge colleges that led to the creation of much of the housing of those cities. 

I grew up in a terraced house in a suburb (Orpington) that pretended to be part of the garden city movement. There was a garden in front, a garden at the rear, and a small green area between our house and the other side of the street (with a sign saying “no ball games”). The fact that it was a terraced house was not really the point; the houses could have been detached or semi-detached, but the values would have been the same.   

The terraced house was a regional phenomenon. Although it is found in other countries, it appears to be something characteristic about the England and Wales (I don’t know enough about Ireland to judge), at a particular historical period, say between 1800 and 1960. Terraced houses are still being built, but far less frequently today. 

Does the book define its terms? I can find no definition of “terraced house” in it. It is a house adjoining others, with access only from the front or from both front and rear. They often (but not always) have access from front to back via a passageway, which is typically shared between several properties. 

One key implication of the terraced house is that it was typically built to minimize cost of development by sharing some of the outer walls with neighbouring properties. In other words, the terraced house is the result of a large-scale development rather than an individual builder creating one building at a time. One implication of the terraced house, in other words, is speculation. Muthesius does include speculation in the index, but the passages on speculation are few and unsatisfying: “it would be pointless even to try and give an account of all major speculative developments”. Why? For example, the pattern of some building in North Oxford makes much more sense when it is understood that the Oxford colleges parcelling out the land provided it to speculative builders in lots that could be bid for, which accounts for the variety of buildings in some streets rather than homogeneous development.

In fact, I find Muthesius’ book maddening for three reasons:

First, its accretion of detail without providing signposts to interpret it. The book is poorly organised. Page numbers are placed on the inside of pages, near the gutter, rather than the outside where a reader can see them more easily. Colour plates are scattered unsystematically through the book, so the reader has to hunt without a signpost. The index appears to have a reference for every proper name in the book, with no indication of major or minor references.

2.   Secondly, there is a failure to quote sources for many of its statements. References, where given, are often inadequate as a source. Here are some examples, the first three all from page one, none of which has an attribution:

Most town walls had lost their importance by the 16th century, and there was no need to squeeze into a narrow area within these walls, as there was in so many continental cities.

 

The leading “estates” in the country were often the most important developers of “estates” of houses in the towns. The use of the same word in both contexts is significant and seems peculiar to the English set-up.

 

The suburb developed early in England.

 

Work on the building site was generally well paid. [p28]

Finally, the book focuses on architectural detail when the real interest of terraced housing is not so much the architecture (much of it repetitive, low quality and lacking in innovation) as the social and political environment that led to this kind of housing being built. Plus, there is a more recent angle. The author seems almost unaware of the phenomenon he was participating in himself, as a lecturer living in Norwich in the 1970s, and choosing to occupy an older terraced house rather than a more contemporary house (a decision that might even have been slightly bohemian for its time). Today, in Cambridge, some of the most desired housing is to be found in poorly-built terraced housing largely for railway workers off Mill Road near Cambridge Station. How did terraced housing become so fashionable? The book doesn’t answer this question.  

4.     There are no references in the index for “housing association” or “council house” or “social housing”, but there are over 50 index references for “brick”. This suggests a sense of priorities many of us don’t share. Could the state raise standards and provide beauty?

To be fair, the merits of the book are many. There is a wealth of detail. This is a useful book to refer to. Many of the illustrations are fascinating and documents in themselves. Muthesius is clearly very well read on 19th-century books on housing, such as J J Stevenson, House Architecture (1880), and T Webster and Mrs W Parkes, An Encyclopedia of Domestic Economy, 1844. There is no denying their contemporary validity as primary sources.

But ultimately, at the end of the book, Muthesius returns to the issue that clearly concerns him most. Can the terraced house be an art form? Not according to Ruskin, Morris, and Unwin, who “condemned millions of houses with their countless items of craftsmanship belonging to the polite vernacular - if such a formulation is permissible” [p256]. Ultimately, such a question is meaningless today, as the industrialization of building led to a mechanical standardization, which is what we for the most part live with today. As with many other aspects of this book, it is an answer to the wrong question: We don’t read a book on terraced housing to worry about if it is art. Perhaps another book might address how local authorities attempted to bring beauty to the working-class house. But not this book.

Learning more about local villages

I am a perpetual tourist, I can't help it. I can’t stop visiting places near to where I live. I live in Cambridge, and today on the bicycle I was visiting the wonderfully named Shudy Camps, a small village of some 300 people just ten or so miles from Cambridge. The village appears to be a rather odd collection of clusters of buildings, rather than just one central area. But that's about all I was able to gather from passing through it. Yet Shudy Camps is the site of a major Anglo-Saxon burial site, dating from the 7th century, with over 149 burials. One of those burials was a woman, buried in her iron bed, a remarkable discovery from an excavation in 1933, )although the same type of bed burial was also found elsewhere in Cambridgeshire just up the road at Cherry Hinton). 

How do I know all this? Not, for once, because I can find out in Wikipedia. The Wikipedia entry for Shudy Camps is just five sentences. No, I have in my hand a pamphlet – small book, more like – that tells me in remarkable detail the archaeological history of each village in this part of Cambridgeshire. It is called Archaeology of Cambridgeshire, and comprises two volumes; Shudy Camps is in volume two. I discovered these volumes being sold off by the Cambridge local studies library for £5 each volume. The first two volumes don’t cover all of Cambridgeshire, but I’ve never seen volume three, and I don’t think it was ever published.

 

For each village, Taylor gives an outline of the growth (and decline, if relevant) of the settlement, showing fascinating details about individual houses, in their historical context. For many of the villages, there is an excellent annotated map, full of information that could only be gained from someone with Taylor’s experience (she was County Archaeologist for 21 years). By comparison, the relevant entries in Pevsner’s Buildings of England are limited only to a few buildings, and lack much of the context that makes the articles so fascinating. The Victoria County History, where it exists, is full of detail, but you cannot see the wood for the trees. Next to no maps or illustrations. 

Map of Balsham, Cambridgeshire, from the Archaeology of Cambridgeshire (Taylor, 1998)

With those maps, Alison Taylor achieves something that many major UK publishers failed to do, which is to create some effective integrated publishing – the text and illustrations complementing each other on the same page. You wouldn’t think it so difficult to do until you try it. In contrast, Wikipedia for small communities tends to be anecdotal, full of trivia, and frequently praising local details (“The Holy Trinity Church [at Balsham] holds two services every Sunday and communion every Wednesday. The church also plays host to two yearly concerts by the village choir.”)

Instead, Taylor analyses. Simply by looking at census records, Taylor is able to tell a story for each village. Shudy Camps, for example, had 85 tenants recorded in 1279, which grew to 418 people in 1831, since when it has declined. Which leads to lots of questions: why the increase? Why the decline? For one village in West Cambridgeshire, Knapwell, Taylor identified that the entire axis of the village had moved to follow the movement of the main road through the village, from east-west to north-south.

Sadly, I don’t think there will ever be a third volume. The finances of local authorities have been challenged so drastically by central government cutbacks that such discretionary expenditure is unlikely ever to be possible again. I cannot imagine Reading Borough Council, for example, ever again publishing a guide to a Terry Frost exhibition at Reading Art Gallery, which took place in 2009 (the guide cost me £1 in the Gallery shop).