What are your thoughts on ESG investing?
This may stir the pot a little bit but I’m curious to hear what you all think about ESG investing.
I understand the conceptual nature of it but I’m struggling to wrap my head around the validity of it considering (1)companies can manipulate their scores rather than actually being ESG focused (purchase govt credits) and (2) how the whole field lacks a concrete basis to judge a company and has a lot of grey area. To me, it seems like it’s more of a feel good topic in the finance world but I’ll be the first to admit that I’m less educated on the intricacies.
https://www.wallstreetoasis.com/forums/blackrock-puts-climate-at-the-ce…
my thoughts haven't changed
All very valid points. Last bit on more active management was quite interesting, I think spot on.
IMO, for ESG focus to be on par with or outperform, will need a fundamental shift in how we evaluate investments. Markets need to ascribe some sort of value penalty for negative externalities that businesses aren't really penalized for today. Or reward businesses that actively manage for these. I hope we get there someday, we are just not there yet.
I think the other thing is very clear definitions on negative externalities and how you're going to differentiate between ESG/non ESG. here are the top holdings in XVV, the s&p esg fund
AAPL - if you believe there's no child labor happening in coal fire factories where iphone components are made, I've got a bridge to sell you
MSFT - not sure
AMZN - yeah, a company that's openly a sweatshop is esg
FB - tell me more about how good this company is for the "social" category. mental health on teens, election meddling, censorship, yep they're checking all the right boxes
GOOG - yeah, I'd say censorship and incentivizing conspicuous consumption based on ad revenue is good for society and the environment, well done
you get the idea. I think the negative externalities are more complex than avoiding tobacco, pornography, offshore drilling in the arctic, etc., but maybe I'm too jaded. I just cannot in good conscience recommend esg investments when I think they fall short on all counts (not saying I'm perfect, but I don't pretend to be helping), cost more, and are substantially the same as a plain old index fund (the top 10 for esg and non esg are IDENTICAL, and that's the majority of your performance)
I think the only companies that can claim to be esg are patagonia, dr bronner, and other companies with high marks from ewg and potentially b corps (though I'm less versed in that). though since there's no way to invest and therefore charge fees on any of those investments, no one's interested
lest I sound too much of a blowhard with no solutions, here's what I do because I do give a shit about the environment. first, eliminate waste in my own life. I don't reup cars, clothes, materials, etc., and when I do buy something new I purge my closets and give to the needy. I try to purchase from companies like patagonia, bronner, and ewg approved brands where possible, favoring local over mega (though I still love my zoom pegasus, sorry), and picking up trash where I see it. leave the world a better place than you found it, even if it's just picking up a coffee cup that's right next to the recepticle that some mouth breather was too lazy to pick up after they missed their jump shot. second, humility. as I wrote in the thread, there's a ton of unknowns so while the precautionary principle holds, I have no idea if what I'm doing is hurting or helping, so a less is more approach and common sense are operative (e.g. I've got no clue about the US's fossil fuel industry decreasing will affect the world one iota, but I can at least buy clothes from places that source sustainable cotton and don't abuse workers, as an example). finally, don't be fat. obesity has many problems and one of them is greenhouse gas emissions. so expel some carbon dioxide while you go for a jog or bike to work, and stop funding the poor labor conditions and environmental disasters that go into making your factory farmed overly processed fast food.
It's a marketing ploy, nothing more. There are legitimate investors in clean energy, sustainable agriculture, and other "green" sectors, but the broader ESG label is just a new buzzword to draw money with.
i think it's the next big thing
I'm going for an add-on designation in the space since it seems like it'll add value even though I've pushed a couple ESG funds out the door.
I laugh when active funds say it 'is part of their investment process.' Yeah sure, killing puppies and kittens is bad for marketing too. It doesn't boost returns though, and you don't mean it.
MSCI's Guido Giese has a nice paper summing up their ESG research. The short of it is that ESG doesn't boost returns but adds non-directional tracking error. The more ESG you get the higher the tracking error.
Eaque molestias a doloremque incidunt hic eos provident. Sit est in sit aut saepe officiis reprehenderit. Et asperiores asperiores dolor nisi blanditiis. Est earum quam et ullam et vel.
Aut fuga a error beatae. Architecto itaque nemo illo amet suscipit sed non. Omnis odio dolor praesentium aut. Ut qui qui quia explicabo pariatur odit.
Ut nostrum ex ut deserunt tempora. Qui asperiores aut quia enim quo. A possimus mollitia dolorum alias qui necessitatibus adipisci aspernatur. Nemo iure sapiente ut nihil.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...