What’s Wrong With ESG Investing as Explained Through the Medium of Ohio
Natural gas equipment rusting in the Rust Belt of Southeast Ohio.
Photographer: Kristian ThackerWhat is Fifth Third Bancorp? By most accounts, it’s a regional bank based in Cincinnati. Descended from the Bank of the Ohio Valley founded in 1858 to service an influx of western-bound settlers and then merged with a succession of local lenders in subsequent decades, the company has grown to become the quintessential mid-sized bank for Middle America.
Its history has often mirrored that of its founding state, with Fifth Third helping to fund the growth of what historian Steven J. Ross has called the “first great industrial metropolis of the Midwest.” Nowadays the company is a reliable lender and issuer in capital markets. Credit rating agencies Standard & Poor’s and Moody’s grade its bonds as ‘BBB+’ and ‘Baa1’ respectively, firmly in ‘lower medium’ investment-grade territory.
But in another way, Fifth Third is very controversial. In the world of ESG ratings no one can agree on quite where the bank stands, exactly.
Fifth Third’s Global ESG Rank from Standard & Poor’s comes in at 49 — handily beating industry averages on all three ESG metrics. At rival ESG ratings firm MSCI, however, the bank receives a paltry ‘B’ rating — well below average for its peer group and making it a laggard among 190 other banking companies. Using a simple translation framework, S&P’s ESG ranking works out to something like a ‘BBB,’ far above where MSCI rates the same company.
In this way, Middle America’s mid-sized bank is emblematic of a wider problem now plaguing one of the hottest corners of finance: No one can quite agree on where companies stand when it comes to the trifecta of ESG concerns — environmental, social and governance — that has morphed into a responsible investing craze worth trillions of dollars.
In fact, a quick tour through Ohio — once a major Midwestern manufacturing capital before falling into ‘Rust Belt’ status in the 1980s as factories shifted abroad — can give us a peek into the failure of socially-responsible capitalism to so far actually improve society.