There's no need to quantify everything

ESG stands for Environmental, Social, and Governance, and investors are increasingly considering these non-financial factors when identifying companies' risks and growth opportunities.  

About ESG, the Economist writes:

[M]uch of ESG is deeply flawed. The concept’s popularity has been partly fuelled by real-world concerns, especially climate change. Yet it has had a negligible impact on carbon emissions, especially by the biggest polluters. Its attempt to address social issues such as workplace diversity is hard to measure. As for governance, the esg industry does a lousy job of holding itself to account, let alone the companies it is supposed to be stewarding. It makes outsize claims to investors. It puts unmanageable demands on companies. ESG investing: A broken system needs urgent repairs, Economist, 23 July

I share the Economist's scepticism; I dislike the over-formalising and quantification of things that are best left to people's discretion. When certain ESG concerns, or such matters as affirmative action become over-formalised, then politics steps in, the debate becomes polarised and meaningful discussion becomes impossible. 

However, a Social Policy Bond regime would revolve around the targeting of broad, meaningful outcomes, and just about any measure of such outcomes can be gamed and manipulated. (There are workarounds, though. For example, when targeting for improvement the literacy rate of teenage girls in Bangladesh, participants in random surveys would not be specified in advance. so that they couldn't be given more attention than other girls.) As well, there is Campbell's Law to consider: 'The more any quantitative social indicator is used for social decision-making, the more subject it will be to corruption pressures and the more apt it will be to distort and corrupt the social processes it is intended to monitor.'  I'd like, therefore, to see a panel of trusted, impartial experts confirm that any recorded improvements are genuine. Because Social Policy Bonds work best at a large scale - national or global, say - the costs of monitoring and verification would be relatively low.

I don't need to know about electric vehicles

Rich Barnett writes to the editor of the Spectator: 

Martin Vander Weyer might continue to bang the drum for electric cars and their ‘green’ credentials but the problem is that in the drive for such cars we have effectively seen a cessation in development of petrol and diesel engines....[Y]our correspondent swerves the issue of just how clean these [electric] cars are, especially when we follow the production process back to the raw materials. In reality, the cleanest cars are those already built and maintained. Rich Barnett, the Spectator, 9 July

Mr Rich may be right or wrong. I don't know. But, as an advocate of policy that targets meaningful environmental outcomes, I don't need to know. It might be true that the environmental costs of electric vehicles is higher than that of petrol and diesel vehicles now; but that could change. What is the probability that legislation made today can correctly calculate even today's relative environmental costs, let alone those of any future time period?

My suggestion is that instead of trying to work out the best ways of improving the enviroment when our knowledge of ever-changing relationships between cause and effect is inescapably scanty, we target those environmental goals we want to achieve and reward people for achieving them. This makes better sense for two main reasons: 

• There is far more consensus about what those goals should be than the supposed means by which they can be achieved.  
• Technology, and our knowledge of the relationships between cause and effect are changing constantly in ways that nobody and, in particular, no regulatory body, can anticipate. 

When governments favour, whether by subsidy or other means, what they believe to be the most efficient way of achieving certain ends they are often looking only at current technology and short-term goals. Our environmental problems, though, require a long-term approach. Environmental Policy Bonds aim not only to re-focus policy on long-term goals but to inject the market's incentives into their achievement.