There are many parallels to draw between the collapse and pending investigation into FTX, the fifth cryptocurrency exchange run by major Democratic donor Sam Bankman-Fried (SBF), and the scandal-ridden Environmental, Social, and Governance (ESG) movement.
Recently valued at $32 billion, FTX’s rise and fall in just three short years mirrors growing questions surrounding flawed ESG ratings and unrealistic standards set by virtue signalers leading major companies.
Last year, the AI-driven ESG ratings firm, Truvalue Labs, awarded the embattled crypto exchange company a “G” score of 50 out of 100 for “Leadership and Governance” despite only having three board members—SBF included (for contrast, Exxon Mobile received a score of 38). A score of 50 is considered a “bad rating.”
Governance pertains to corporate boards boasting management standards and ethics. But as Bankman-Fried bragged to Vox, a progressive news outlet, the company’s score had little to do with any actual merit. Instead, SBF was playing the “dumb woke game we Westerners play” to attract investors and cozy up to the media and left-wing politicians.
Unsurprisingly, FTX didn’t model governance (G) standards in their business practices. Critics contend they weren’t using transparent accounting methods, maintaining leadership diversity, avoiding conflicts of interest, or being accountable to shareholders.
John J. Ray III, FTX’s new CEO who oversaw the restructuring of Enron, skewered the troubled entity for its many structural failures. Senator Cynthia Lummis (R-WY), one of the Senate’s biggest cryptocurrency advocates, said FTX’s shady practices are akin to a Ponzi-like scheme.
Forbes explains that the FTX case study reveals the hypocrisy of the Governance plank because of “sloppy and likely illegal management practices.” And their analysis shed light on casting doubt on the “integrity of the ESG Rating Business.”
As I noted in an op-ed for IWF, the ESG reporting regime is subjective at best and ripe for scrutiny:
ESG’s most troubling aspect—its reporting regime—is facing immense scrutiny because rankings allow companies and governments to project a “good” social responsibility image. But do they hold water? Given their subjective nature and unaccountability stemming from self-reporting, ESG rankings are flawed.
Like his fellow ESG proponents, SBF talked a great game of portraying virtuous behavior but his business practices showed otherwise.
The lesson learned here is as goes FTX, so goes ESG. To learn more about ESG’s flawed reporting regime, go HERE.