The tarnish halo of ESG, featuring me

Hi Folks :wave: :sauropod:

After some posts I wrote on here about ESG investing @Stalwar reached out to me to to see if I wanted to talk to a journalist at Bloomberg for a piece she was writing about the topic. This is an area I had been reading up about, before that Elon tweet, and I was keen to contribute and also learn more.

We set up a zoom with Natasha who is a specialist ESG investment writer at Bloomberg and spoke for about 45 minutes on the on all matters ESG and my encounters with trying to invest more ethically. I learned a lot from Natasha who is highly knowledgable in her field and some of our conversation features in an article that was published today.

https://www.bloomberg.com/news/articles/2022-06-15/investors-are-increasingly-skeptical-of-esg-this-is-why

When Neil Baker, a 37-year-old who works in the UK construction industry, started looking for ESG investments less than two years ago, he said he was dismayed at what he found. One stock he really didn’t want to own was Facebook parent Meta Platforms Inc. But finding an ESG fund without big tech was almost impossible, he said. “I don’t want to over-ham it too much, but I felt like I’d almost been had because I thought I was buying into the more ethical side of this,” he said. “And then you start looking, you’re thinking, why is Facebook in there?”

The article goes into more details around how retail investors look to be turning away from some ESG funds and how the $4,000,000,000,000 ($40tr … 13 zeros) has under performed the market substantially this year so far with May 2022 recording the first capital out flows.

I found the who experience really interesting and learned a lot. To butcher a quote from Professor Scott Galloway (Prof G), If you really want to get good at something explain it to a monkey. One of you will walk away still confused the other an more knowledgeable.

In summary I wanted to thank @Stalwar for the opportunity to do something new and something I simply wouldn’t have been able to to do without him and the wider PR team. If you get offer the chance I would recommend doing it! :sauropod:

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Congratulations @NeilB. Interestingly I read a similar quote in Buffet’s latest shareholder letter. He mentioned the ‘Orangutan effect’ … apparently something Charlie Munger regularly refers to.

If you sit down with an orangutan and carefully explain to it one of your cherished ideas, you may leave behind a puzzled primate, but will yourself exit thinking more clearly

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Thanks @bitflip

So that’s where he was repeating it from. I knew I had mangled it.

It really resonated with me, good ole Charlie.

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Anyone who finds Facebook/Meta to be deeply unethical is alright by me! You can take me out for a plate of grass anytime :smiling_face_with_three_hearts:

I don’t want your new found fame to go your head… but would you sign my Freetrade hoodie for me?

When it comes to my own personal ESG approach, outside of a few speculative holdings, I just try to shovel my savings into new energy related ETFs/funds. Getting away from fossil fuels, providing energy security, disconnecting from autocratic oil states and having a habitable planet for future generations seems like the most pressing thing to me.

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ESG is the same as any “moral” type decision whether investing or for example politics ie the individual has to find the compromise that suits them best. It is rare that unless you stock pick individual companies that someone else’s selections and criteria are going to match 100% - the question is where do you compromise?

For example some of the largest investors in renewables are fossil fuel companies…

On the other question of performance - should we expect performance to match everything else? If these sectors didn’t need help then there would be no need for ESG investing as a specific theme as they would be part of the mainstream.

Only if you’ll hoof print mine!

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Great article, nice one @NeilB. A shame you’re not wearing a Freetrade hoodie/tshirt in that pic :laughing:!

I’d probably question how bad ‘Flows into ESG funds globally slumped 36% in the first quarter’ is, because we don’t know how that compares to flows into other funds?

Have those dropped significantly too, or increased as a result of people shunning ESG funds (which is probably what people would assume from reading the article)?

Or is the drop due to fewer people investing in general, due to tightening of belts to cope with inflation/higher cost of living?

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Over the past few years ESG has out preformed equivalent global trackers but this was likely a result of capital inflows.

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Excellent Excellent question. When people quote things like this they should give a benchmark. The article authors use indices and there is some merit in that. However, what is more germane is ‘what is happening to other funds?’

There is no doubt that a lot of greenwashing is going on. There is no doubt that providers of these funds regularly issue new funds to capitalise on fashions and trends. Buyer beware remains true as ever.

Once again, superb question. Excellent thinking.

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If you take a look at the biggest companies THG at feature in ESG fund they’re not small companies who are starved of capital. Take V3AM the much lauded vanguard ESG fund -

Money managers are very good a meeting demand and charging for that service, EAG fund costs have come down but we’re for a long time 20% higher than a global tracker fund.

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I did ask @Rajan07 for one bit even the head of PR couldn’t lay his hand on one. I was wearing my Freetrade socks but the photographer didn’t ask me to take my shoes off, for some reason!

Very good point, I started to write a bit about not having a control of non ESG but felt I was going in to the weeds a bit. Maybe should have trusted my instincts, I’d expect lots of funds to have suffered from capital out flows recently - wonder if the data is out there?

Patrick O’Shaughnessy’s recent podcast with Aswath Damodaran was insightful about ESG. I wanted to believe that ESG would have a positive impact, and invested in it, but paying twice the fees to invest in the S&P490 is quite the marketing trick. Potentially it is better to earn the profits from ‘sin stocks’ and direct in a ‘good’ direction.

Is there someone doing something like what Jack Boggle did for fees as for the environment in investing? BlackRock seem to be the problem, not the solution.

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On the flip side something like INRG clean energy has a much different top 10 holdings:

|Vestas Wind Systems A/S|VWS|7.93%|
|Enphase Energy Inc|ENPH|6.63%|
|Orsted A/S|ORSTED|5.83%|
|Plug Power Inc|PLUG|4.81%|
|Xcel Energy Inc|XEL|4.14%|
|NextEra Energy Inc|NEE|4.05%|
|SolarEdge Technologies Inc|SEDG|3.99%|
|Iberdrola SA|IBE.BC|3.95%|
|Enel SpA|ENEL.MI|3.89%|
|SSE PLC|SSE.L|3.04%|

And neatly demonstrates the point I made earlier by inclusion of Iberdola, SSE which also use a lot of fossil fuel as well as renewables.

Just because someone calls themselves “green” or sustainable etc doesn’t make them so and vice versa.

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Aswath was the first person who I read on the ESG topic and got me started and reading more.

MCIS charge the same for their global ESG as they do for their non ESG 0.20%. This isn’t really the norm though.

When I think of an ESG fund I’m thinking about a global or regional tracker with the less savoury participants filtered out - which is almost impossible.

This kind of thematic ETF, while facing the same issues over inclusion, also seems to have quite high fees.

Unless you built your own DIY ETF, ie looked at what companies an ESG fund is invested in and just buy those companies separately, ignoring the ‘dodgy’ ones.

Fiddly to keept track but if you did it with Freetrade at least no fees, plus no ETF fee.

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