There will be no clean environments left for our children unless we radically rethink Environment, Social & Governance (ESG) investing. I thought investing in ESG funds would help, but according to experts, ESG investing is cosmetic wish-wash. Apparently only corporate performance matters, not environmental performance.
In its current form, Environment, Social and Governance (ESG) investing will not decarbonise our economies. The volume of “true” ESG funds is still so small that they cannot possibly change contemporary capitalism.
To complicate the issue, US conservatives’ and EU have opposing stances on ESG.
According to the authors, US conservatives' have commenced a “war” on ESG claiming that ESG investing creates negative impacts on the economy, as such, US conservatives' want ESG banned from all government investment portfolios. The premise is - ESG investing is highly impactful in a bad way for the entire economy.
On the othert hand, EU discussions talk about about ESG as "greenwashing" vehicle, in other words, a way for corporations to dress-up or cosmetically change their environmental image. It's a false pretense - ESG does nothing for the economy, at all.
So what is real? The US conservatives' claim that ESG is highly impactful? Or the EU claims that ESG is not impactful at all?
The international research authors purport that the US conservatives' stance is entirely false and only electioneering. Whereas, the EU discussions seem a much more fitting description of what is going on in the world of (allegedly) sustainable finance - ESG is greenwashing for corporate image manipulation. There is little impact on the environment.
Quick summary:
- ESG investing actually does not create any meaningful sustainability impact
- ESG only measures the potential impact of ESG on the corporation and its shareholders, not on sustainability
- ESG funds are not doing enough to have a positive impact in the real world
- ESG fund capital allocation only slightly deviates from conventional funds and is not impactful enough
- Changes to ESG portfolios are more cosmetic than anything else
- Asset managers delegate their investment decisions to ESG indices and most hardly deviate from their non-ESG index benchmarks
Rather than monitoring how a company is affecting or helping with the escalating climate crisis and other ESG issues, it actually tracks how ESG factors are affecting companies.
The Conversation
As a personal investor trying to make an impact on climate change by choosing an 'ethical' portfolio of ESG funds, I made a mistake. Clearly that strategy is misguided because the ESG funds only measure the performance of the company and not the performance of the climate.
ESG investing is basically an advanced form of cognitive dissonance, investing in ESG (eco-capitalism) will not save us from climate change. For those that are wanting to invest in the performance of the climate we need a new system, new benchmarks and new ways for people to get involved in helping reverse climate change.
Thankful to these authors for this work. There will be nothing left for our children unless the financial sector radically reforms how we measure impacts on climate change.
Jan Fichtner
