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Smith's Research & Gradings
Volume: 
XXIX
Issue: 
11
Author: 
June 28, 2021

Smith's Research & Gradings

Smith's ESGradings

Smith's ESGradings

Smith's ESGradings provides award winning research that produces world changing results. From the United Nation's Climate Change Contest of 2017 to the U.S. Energy Department's Carbon Capture and Storage education programs, Smith's ESGradings continues to work across boundaries to achieve a safer, cleaner, and brighter future.

The key to Smith's ESGradings is our "One Team" approach. We work together with all groups to achieve the shared mission for the future of our "One World."

Currently, the ESG community is experiencing growing pains. For example, The Paris Accord participants claim it speaks for the European Union (EU). Yet, the United States has opted to create its own ESG standards. And, of course, the United Nations has its own climate change standards. To make matters more complicated, sovereign wealth funds are investing based on their own ESG/Socially Conscious investment parameters.

ESG is looking a lot more like a first date in the backseat of a car than a mature standard for worldwide development.

The Importance of the Environment

Smith's ESGradings is driven by a Habitability Model. To be sure, all models can be called false. But, some models are useful. This is important for people to understand about ESG.

Much of the work being done for ESG is focused on the environment, which is typically related to CO2 emissions. There is a belief that industrial development by human beings has caused the amount of CO2 in the atmosphere to increase. Initially, the ESG community described the rise in temperatures attributed to the increase in CO2 as "Global Warming".

But, the global temperatures did not support the ESG assertions. So, the ESG community changed the concern to "Climate Change."

The change in nomenclature is important because it underscores a fault line within the ESG community between science and political science. Smith's ESGradings is driven by science but incorporates measures of social goods and the quality of good governance. In contrast, many ESG assessments are driven by political science. The hallmark of the political science approach is the use of population surveys and the encouragement of aspirational goals. The surveys ask respondents to provide information (for free) about their climate change goals — for example, being carbon neutral by, say, 2050. The next year, the climate change survey asks the respondent how the progress is being measured on achieving the 2050 goal. The ESG assessment gives credit if the respondent lowers the date for being carbon neutral to, say, 2030. Never mind if it is scientifically impossible to meet the "aspirational goal" and still power a city with nearly one million inhabitants or sustain a baseload capable of supporting commercial manufacturing.

Smith's ESGradings has found the process is unethical because the "annual progress report" is coercive and often not based on scientific reality. This need to be ethical is why Smith's ESGradings is far more active in the scientific community.

S for Social

The S in ESG stands for Social. An interesting question is what does Social stand for? Unlike the Environmental sector, the Social piece has been poorly defined.

Smith's ESGradings looks through a lens to see how scientific achievement can be used to create social goods (rather than political scientists that seek to change society). Hence, Smith's ESGradings works with project managers and engineers to assess how public policy can be supported using science and technology to improve the social assessment.

A Social Good can be the construction of a pedestrian walkway over a eight lane expressway leading to a Canadian/U.S.A. border crossing that opens up a riverfront to a community. Smith's Waste Heat Exchange technology that gives communities located near cement factories a chance to gain economic advancement. A Social Good can use drone sensors to monitor construction and cell phones to monitor noise generated at a worksite.

Affordable Housing is a great example of a social good. These projects can be financed using low-income housing tax-credits, TBA and mortgage revenue bonds. The financings can include incentives, like zero interest/full principle repayment loans, which are extinguished by a long-term loan.

Smith's ESGradings reviews affordable housing programs for investors to provide an assessment of the facilities and the financing packages. Critical components include the use of metrics based on income, average area income, and unemployment data. Smith's ESGradings for affordable housing will also look at access to public transportation, education, and healthcare.

G for Governance

Many people believe that all municipal bonds qualify for the "G" because they are, in some way, involved with State and Local Municipal government. The more direct the connection to a State or Local government, the stronger the "G" assessment. And, to a large extent, the common belief is correct for the Socially Conscious Investor.

However, Smith's ESGradings includes the quality of the governance in its assessment. "How well a society takes care of its most vulnerable and their access to a healthcare system and education as well as public transportation must be included in the measure of good governance," according to Terence M. Smith, founder of Smith's ESGradings. "We look to see if diversity is encouraged because we know it enhances sustainability and the vibrancy of ideas. It's all good, but some governance can (and perhaps should) be better."

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