ESG investing

Thought it might be useful to have a thread on the wider themes of ESG (Environmental, Social, Governance) investing. Any interesting articles, analysis, thoughts, challenges to the prevailing wisdom…

As the mass of data accumulated, it revealed something surprising. Companies that responded to the pandemic by hiring staff rather than shedding workers saw an average 18% increase in their share price relative to their peers in the first six months of the year; those that offered financial help to employees did about 5% better. And the stock prices of companies that closed stores and laid off people trailed those of their peers by 10% or more.
Bloomberg - Are you a robot?

ESG at Morningstar, lots of links to ESG related articles

Blackrock:

Our view: Companies with strong profiles on material sustainability issues have potential to outperform those with poor profiles. In particular, we believe companies managed with a focus on sustainability should be better positioned versus their less sustainable peers to weather adverse conditions while still benefiting from positive market environments.
Sustainability - resilience amid uncertainty | BlackRock

The Responsibility100 Index

A ranking of the FTSE 100 companies on their commitment to key social, environmental and ethical objectives, inspired by the UN Sustainable Development Goals
https://www.tortoisemedia.com/intelligence/responsibility

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I’m all for responsible investing and make various efforts to align my investing with my principles. ESG in and of itself has some ways to go still, as the Boohoo scandal demonstrates:

“Why did so many ESG funds back Boohoo? High rating given to fast-fashion retailer by MSCI puts sustainable investment scoring systems under scrutiny”

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https://www.morningstar.co.uk/uk/news/AN_1599021608016698500/unilever-to-replace-carbon-from-non-renewables-in-cleaning-products.aspx

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ESG Investment is the topic that bring me back on the Stock Markets 6 month ago.
I created also a blog about ESG, but it is only in French.

What’s your ESG approach?
Positive selection or negative selection?
or something else like impact investing?

An interesting articles on whether ESG investing is effective.

Discuss …

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A great book (comment 9) listed here:

is Woke Inc by Vivek Ramaswamy

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I give you that this is a marketing video by a major investment house. Nevertheless, I think that it speaks to what many of us as investors think about when we think about ESG.

I’m sure a $1.5m fine for over 2 years of lying will really teach them, the fees alone were worth probably 50x the fine. It’s a parking ticket.

https://www.sec.gov/news/press-release/2022-86

He speaks with such clarity and conviction who wouldn’t be convinced? On the fringes it’s easy to work out who is ESG and who is not but it’s the majority in the middle where it’s far harder make a judgment.

To paraphrase Matt Levine’s substack post yesterday how do you choose between “an oil with a diversified board & an EV company with poor workers rights?”

Programming note - If you’re not subscribed to Matt Levine on Twitter and his email news letter youre doing yourself a disservice.

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What ESG funds do you think are the best and not just repackaged index funds with a markup?

In general I think ESG funds do need scrutiny especially for the additional costs they command, but I’m not really sure how this article helps.

It’s really not clear from this piece what the selected funds are supposedly the best at. Are they the best from an ESG perspective, the best in terms of risk-adjusted returns, the best cost/value? I can’t see any rhyme or reason to it.

I also don’t see how these statements lead to the conclusion drawn.

While passive funds may seem like attractive options because of their low price range, there are many benefits of actively managed ESG funds. For starters, even though actively managed funds underperform their passive counterparts in the stock market, they are available in abundance.

So if you’re looking for a reliable ESG fund with reputable names, you should go for actively managed funds.

Active funds are more expensive and underperform, but there are more of them - so therefore you should go for an active fund? This is also inconsistent with the fact that almost all of the ‘20 best funds’ listed in the article are passive.

Also this sentence makes a problematic implication:

Let’s say you’re a person of color and want to promote equality and inclusion at workplaces.

Anyway to answer the question: broad passive funds with negative ESG screening, they are the cheapest and offer the most diversification.

For sectors other than green tech and energy, I feel like ESG fund investing is a potential contradiction in terms. I don’t dispute that it’s possible to make a decent ROI whilst putting money in things you believe in, but for causes other than energy I think such investing makes more sense at a company level than at a fund level.

The reason green tech and energy are exceptions has nothing to do with the worthiness of the cause, but that that there is solid basis to believe that a financial tipping point will be reached past which the successful clean tech companies will experience incredible revenue growth and down the line profits (offset within a fund by a lot of competitors who fail) and that at sector level the ROI will exceed the market average. For any other causes I happen to believe in, I think my time and passion are more effective vehicles to promote them than putting my money into a fund.

To answer the initial question I do have a small % of my portfolio in INRG and consider it low risk. I have a few individual green energy/tech shares as well which I consider high risk.