ESG... thoughts?

[Koyaanisqatsi]

ESG is unarguably becoming more popular and mainstream, and there are a range of different backgrounds and opinions on here so I thought it might be a good platform to ask, what are your thoughts on ESG?

Are you bothered if your money is invested in funds involving tobacco, oil production, alcohol, gambling companies etc.? Are you simply interesting the funds offering the highest returns? Do you find the lack of consistency in how an ESG fund is defined confusing?

[NowWatchThisDrive]

It's a cleverly devised marketing mechanism for investment managers to charge elevated fees, and justify subpar performance, to their customers for making them feel slightly less guilty about their role in facilitating capitalism. Its purported ultimate goal - to make less of the sinful stuff happen - doesn't really align with the economic reality that artificially suppressing the share prices of sinful companies doesn't necessarily affect their ability to do the sinful things; in fact, as long as those companies remain cash generative, reducing their future cost of capital will eventually just lead to a higher expected return for other investors who aren't prevented from owning them by ESG constraints.

The lack of consistency in the definitions is part and parcel of the gig, because it enables the people involved to continue earning their livelihoods working to fix a problem that, in reality, will never be fixed as long as they're being paid to try and fix it.

[simong800]

Most "ESG" funds are just quality growth funds with a big overweight to tech and healthcare - which has actually caused a massive bubble in quality stocks. Think of the billions of pounds that have flooded into the same names you see in all these "ESG" funds (Adobe, Microsoft etc etc) because they all screen well using the same metrics across 100's of new funds.

Personally I think it's dangerous to see for example defence companies portrayed as uninvestable and evil, when it's vitally essential that they can raise capital and help defend freedom given the elevated threats in today's world.

The biggest issue is the sheer hypocrisy - you see companies like Alphabet in "ESG" funds, when they literally create algorithms to get people hooked to their devices which has a massive impact on their mental health. That's seen as "good" but a company that makes aeroplanes to defend us in the event of war are seen as "bad".

[z4RRSchris]

couldn't care less, highest return lowest risk please.

[Countdown]

z4RRSchris said:

couldn't care less, highest return lowest risk please.

Our advisors suggested that ESG are lower risk given the increased focus on sustainability. To be honest it's a bit of a viruous circle; because more and more people are piling into ESG funds they are going up in value, which makes it look like ESG funds are providing higher returns....also some of the badging of funds as "ESG" is a bit suspect IMHO

[RichTT]

Currently it's just marketing garbage. Could be a positive movement, but so poorly implemented that it's fundamentally broken from the off.

[Jambo85]

Countdown said:

z4RRSchris said:

couldn't care less, highest return lowest risk please.

Our advisors suggested that ESG are lower risk given the increased focus on sustainability. To be honest it's a bit of a viruous circle; because more and more people are piling into ESG funds they are going up in value, which makes it look like ESG funds are providing higher returns....also some of the badging of funds as "ESG" is a bit suspect IMHO

Is it also true to say that “good” ESG companies will be best placed to survive whatever climate-related regulation that may be coming?

[Halitosis]

More money placed in ESG funds means more pressure can be applied by the fund managers onto the companies to clean up their processes and work towards a more environment-friendly low-carbon future. It's at the early stages right now, but the bigger ESG investing gets, the faster industries will adapt.

Besides the environmental element, the S (social) includes human rights & labour standards, and the G (governance) includes standards relating to bribery, corruption, whistleblowing, political contributions and lobbying.

All of these benefit us "little people" as employees, customers, and neighbours, so I'm all for it. Accepted there are issues around 'greenwashing' in these early days, but practices, measures, and agreed standards are improving.

Or you could ignore all of the above, invest in companies that use Bangladesh sweat shops, market cigarettes and baby powders to African tribes, and bulldoze the Amazon basin in search of short term gain.

[Countdown]

Jambo85 said:

Countdown said:

z4RRSchris said:

couldn't care less, highest return lowest risk please.

Our advisors suggested that ESG are lower risk given the increased focus on sustainability. To be honest it's a bit of a viruous circle; because more and more people are piling into ESG funds they are going up in value, which makes it look like ESG funds are providing higher returns....also some of the badging of funds as "ESG" is a bit suspect IMHO

Is it also true to say that “good” ESG companies will be best placed to survive whatever climate-related regulation that may be coming?

That's the argument that Fund Managers are putting forward. For example our Pension Fund is investing heavily in renewables (Solar, Wind) because the demand for these is increasing as Govts need to hit net-zero targets.

[Jambo85]

Halitosis said:

More money placed in ESG funds means more pressure can be applied by the fund managers onto the companies to clean up their processes and work towards a more environment-friendly low-carbon future. It's at the early stages right now, but the bigger ESG investing gets, the faster industries will adapt.

Besides the environmental element, the S (social) includes human rights & labour standards, and the G (governance) includes standards relating to bribery, corruption, whistleblowing, political contributions and lobbying.

All of these benefit us "little people" as employees, customers, and neighbours, so I'm all for it. Accepted there are issues around 'greenwashing' in these early days, but practices, measures, and agreed standards are improving.

Or you could ignore all of the above, invest in companies that use Bangladesh sweat shops, market cigarettes and baby powders to African tribes, and bulldoze the Amazon basin in search of short term gain.

That all sounds wonderful, you can call me cynical, but do you really believe that the fund managers are driving this out of the goodness of their hearts, because it's the right thing to do?

[Halitosis]

Jambo85 said:

That all sounds wonderful, you can call me cynical, but do you really believe that the fund managers are driving this out of the goodness of their hearts, because it's the right thing to do?

To be honest, is that even relevant? Do you make investment decisions based purely on the fund manager's marketing, or do you consider wider aspects such as sectors, locations, risk, past performance, and even future sustainability? There's been a lot of money made in covid testing in recent years, but that's a classic example where sustainability is a big consideration - just extrapolate that for carbon-intensive businesses.

Edited by Halitosis on Wednesday 5th October 18:36

[simong800]

Halitosis said:

Or you could ignore all of the above, invest in companies that use Bangladesh sweat shops, market cigarettes and baby powders to African tribes, and bulldoze the Amazon basin in search of short term gain.

Because you’d never find companies with dodgy practices in an ESG fund would you….

[Jambo85]

Halitosis said:

Jambo85 said:

That all sounds wonderful, you can call me cynical, but do you really believe that the fund managers are driving this out of the goodness of their hearts, because it's the right thing to do?

To be honest, is that even relevant? Do you make investment decisions based purely on the fund manager's marketing, or do you consider wider aspects such as sectors, locations, risk, past performance, and even future sustainability? There's been a lot of money made in covid testing in recent years, but that's a classic example where sustainability is a big consideration - just extrapolate that for carbon-intensive businesses.

Edited by Halitosis on Wednesday 5th October 18:36

I don't know but I think it's an interesting topic, I could have written the OP's OP as I have wondered about this a lot. About my decisions, I increasingly leave it to others, but the best answer I can give is I want the best return without doing anything illegal, and I'd rather not be invested in anything down right immoral either. But where to draw the line on that is a long discussion. I'm OK with being invested in oil, alcohol and tobacco, for instance. I also think there's an argument that Bangladesh sweatshops, while unpalatable to us, are probably better for many than the alternative of no employment. So it's maybe only the illegal that I'd rule out!

Regarding the funds themselves, there is such an obvious contradiction - fund managers want the best returns; "being" ESG invariably costs more than not "being" ESG hence returns will be less, all else being equal. Banking has never really shown the desire to invest on moral grounds before, and as far as I know fund managers haven't been elected as world ESG police, so not taking their ESG statements at face value is healthy IMO.

[RichTT]

Louisiana state treasury just announced that it is withdrawing $794m from Blackrock (on top of $560m already pulled) citing that their ESG investment strategies "have crippled the energy sector".

[dmahu]

My investments are split 75% index trackers, 25% energy stocks.

For me it was an anti-ESG play. Everyone is stopping investment in oil and gas way too early at a time when demand increases.

Regardless of volatility, I will happily sit on oil stocks for the next 20 years. It’s only now post Putin that the adults might enter the room again, then it will take a long time to fix the supply side.

[Countdown]

Everybody's wise after the event.

2 years ago energy stocks were at 20 year lows. Shell and BP have recovered mainly because of the Ukraine War but still below 2006/2010/2018 peaks.

Once the Ukraine war finishes will energy stocks still be in such a healthy position? I'd be surprised especially with the constant improvements in renewables.

[dmahu]

Shell was battered by Covid and it’s been a slow crawl back. It spiked a little when the oil price ran up to $130, then back down when oil fell to $80, but it’s generally been a story of reverting to trend. I bought a lot of Shell post Covid and then topped up in the anti-ESG play which I think is a multi year play.

[Derek Chevalier]

Countdown said:

To be honest it's a bit of a viruous circle; because more and more people are piling into ESG funds they are going up in value, which makes it look like ESG funds are providing higher returns

Yep, as si800 points out, there's an overlap with large cap growth/quality (which had been on a great run until the start of the year), so by paying for higher priced investments now, you are potentially reducing future returns (you have effectively brought future returns into the present and taken them now).

https://www.morningstar.co.uk/uk/news/226673/equit...

Interesting to see how investors views on sustainability change depending on what the market is doing

"Even sustainable funds struggled this past month. Strategies with a sustainable focus had their first month of net outflows since March 2020, at £199 million. Still, they have attracted £27 billion over the past year."

Edited by Derek Chevalier on Friday 7th October 07:49

[Derek Chevalier]

Countdown said:

Everybody's wise after the event.

2 years ago energy stocks were at 20 year lows. Shell and BP have recovered mainly because of the Ukraine War but still below 2006/2010/2018 peaks.

Once the Ukraine war finishes will energy stocks still be in such a healthy position? I'd be surprised especially with the constant improvements in renewables.

Value stocks in general had taken a near-unprecedented beating relative to growth stocks until recently as people believed it was different this time (again).

[NowWatchThisDrive]

Derek Chevalier said:

https://www.morningstar.co.uk/uk/news/226673/equit...

Interesting to see how investors views on sustainability change depending on what the market is doing

"Even sustainable funds struggled this past month. Strategies with a sustainable focus had their first month of net outflows since March 2020, at £199 million. Still, they have attracted £27 billion over the past year."

Edited by Derek Chevalier on Friday 7th October 07:49

Indeed...people find it easy to be principled when a long bull market has given them the luxury of being able to worry about other things besides returns!