You have undoubtedly seen the glossy product brochures for Environmental, Social, and Governance (ESG) funds. They promise strong performance and the chance to impact the world for the better. But it turns out, that neither of those promises is being kept. Sanjai Bhagat reports in the Harvard Business Review:
As of December 2021, assets under management at global exchange-traded “sustainable” funds that publicy set environmental, social, and governance (ESG) investment objectives amounted to more than $2.7 trillion; 81% were in European based funds, and 13% in U.S. based funds. In the fourth quarter of 2021 alone, $143 billion in new capital flowed into these ESG funds.
How have investors fared? Not that well, it seems.
To begin with, ESG funds certainly perform poorly in financial terms. In a recent Journal of Finance paper, University of Chicago researchers analyzed the Morningstar sustainability ratings of more than 20,000 mutual funds representing over $8 trillion of investor savings. Although the highest rated funds in terms of sustainability certainly attracted more capital than the lowest rated funds, none of the high sustainability funds outperformed any of the lowest rated funds.
That result might be expected, and it is possible that investors would be happy to sacrifice financial returns in exchange for better ESG performance. Unfortunately ESG funds don’t seem to deliver better ESG performance either.
Researchers at Columbia University and London School of Economics compared the ESG record of U.S. companies in 147 ESG fund portfolios and that of U.S. companies in 2,428 non-ESG portfolios. They found that the companies in the ESG portfolios had worse compliance record for both labor and environmental rules. They also found that companies added to ESG portfolios did not subsequently improve compliance with labor or environmental regulations.
You can read more about ESG here:
- Arrogant ESG Strategies Exposed by War in Ukraine
- ESG Creator: “It’s a Marketing Mania”
- ESG Investing Serves America’s Elites and Adversaries, not Its Citizens
- ESG Managers Fail the China Test
- Progressives Manipulate War, ESG Funds, to Push Great Reset Agenda
- ILLEGAL? ESG Is Strangling Oil Exploration, and May Break the Law
- You Invest, They Win: ESG Is a Money Grab
Action Line: Avoid ESG and other investment products as dangerous to your retirement. Instead, you should consider building a portfolio of individual stocks and bonds that fit a plan created just for you. If you need help, contact me here and we’ll talk.
E.J. Smith - Your Survival Guy
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