ESG has seen explosive growth as investors become more attuned to the dangers of climate change and increasingly seek investment vehicles that align with their values. But ESG investing has seen some pushback in the past few months.
General Counsels worry about what ESG investment and open political stances from company leaders could mean for liability. An SEC ruling earlier this month took aim at the sometimes opaque and misleading quality of some ESG metrics. Depending on what metrics are employed, EV company Tesla could end up looking less ESG friendly than Exxon.
Former head of sustainability at DWS, Desiree Fixler, told GreenBiz, “I do believe, and even Friedman said, that elected governments are the ones who shape nonfinancial frameworks for society. Government has to lead first, but I still do believe in the power of ESG investing. My main issue is about misrepresentation.”
Seeing a Problem Is the First Step to Solving It
Criticism leads to important discussions. The Ex-CIO of Blackrock’s Sustainable Investing, Tariq Fancy, released a sobering criticism of “green-washing” on Medium. As he notes in the piece, “there’s always money to be made from telling people what they want to hear.”
Many of the criticisms around ESG swirl around the ideas of tangible impact vs. messaging. Both Corporate Social Responsibility and ESG programs have often been labeled as thinly-veiled marketing ploys rather than substantive actions. These discussions have been around for a long time in the philanthropic space, and they can be hard to navigate sometimes. But they are important conversations to have as ESG investing evolves. Even if ESG scoring needs an overhaul, there are plenty of indicators of positive effects out there.
Vanguard revealed that it supported environmental and socially focused shareholder resolutions 20% of the time this year, up from 6% in 2020. In one high-profile contest, Vanguard voted in favor of a proposal for Chevron to cut emissions.
Aniket Shah, global head of ESG and sustainability research at Jefferies, told GreenBiz, “We have a financial system that has never worried about negative externalities…. ESG has been helpful in educating investors about these material risks in a way that nothing else has. Like the Fed now thinking about climate stress testing? ESG has undoubtedly been crucial to socializing these types of ideas.”
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