Is ESG just a fad?

Environmental, Social and Governance (ESG) has captured the attention of investors in recent years, with companies placing a focus on gearing the world for a 'better future'. In the last 2 years, $1 trillion USD have been poured into ESG investment funds, and it appears the trend is here to stay.


What is ESG investing?


ESG investing takes Environmental, Social and Governance factors into consideration following the demand from large investment funds seeking greater transparency around these metrics.


Is ESG just a Fad?

Source: Getty


Whilst ESG investing has been key in holding companies accountable with their compliance in ethical practices and environmental sustainability, there are firms that have taken advantage of ESG dishonestly. For example, companies that embody ESG are eligible to borrow funds at negative interest rates from the European Central Bank. This has led to financial giants such as JPMorgan, Goldman Sachs and BlackRock to announce new initiatives aimed at boosting their ESG metrics. Chamath Palihapitiya brought to light that these companies now have the opportunity to depict themselves as ESG friendly in order to borrow money easily.


EU non-profit InfluenceMap researched 723 equity funds that marketed ESG claims, finding that 55% of these funds marketed as low carbon or fossil-fuel free grossly exaggerated their environmental claims. In fact, over 70% of funds promising ESG goals fell short of their targets during 2021.


Are ESG investment funds adhering to environmental, social and governance principles?


BlackRock's ESG-aware fund (ESGD) currently holds more than $500 million in major fossil-fuel companies such as BP, Glencore, Equinor, and TotalEnergies. With 9.11% of companies in their ESG fund being directly involved in coal, gas and carbon emissions, BlackRock's motivations must be called into question.


Goldman Sachs Clean Energy Income Fund (GCEPX) has an egregious 44% of its fund in fossil fuels. Does that seem like a fund that believes in clean energy?


Whilst there are few funds that demonstrate responsible investment in ESG-centric companies, the majority indicate a lack of consistency and often poor transparency on their alignment with ESG. Investors who believe they are contributing towards a sustainable future by supporting causes like environmental sustainability, social change or corporate responsibility are blindsided by companies allocating their funds into coal and gas companies.


Are you invested into any ESG funds? Perhaps it is time to check your investments to ensure they align with your sustainability interests.

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Disclaimer: This article does not constitute financial advice nor a recommendation to invest in the securities listed. The information presented is intended to be of a factual nature only. Past performance is not a reliable indicator of future performance. As always, do your own research and consider seeking financial, legal and taxation advice before investing.

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