In talking about ESG and how sustainable investing can be seen as a self-defeating strategy, according to some, there are some concerns that have come within an area that has taken off big this year. Burton Malkiel, professor emeritus of economics at Princeton University and author of “A Random Walk Down Wall Street,” and Dave Nadig, CIO and Director of Research at ETF Trends, assess the state of sustainable investing with CNBC’s Bob Pisani on this week’s “ETF Edge.”
Malkiel clarifies that companies are very complicated, and determining how some manage to fit into a window of parameters when it comes to ESG leads to much disagreement between the raters involved in determining ESG scores.
“When you look at the ETF portfolios that are broad-based, look at the top ten stocks. Are you really going to feel good about owning them?” Malkiel asks.
He points this out, as companies such as Facebook (FB), among others, which reflect issues concerning personal privacy and other factors that play into a certain moral value that should be taken into consideration in the realm of what ESG funds should stand for.
Watch Dave Nadig and Burton Malkiel Discuss ESG Value:
Malkiel adds, “If you want to be an ESG investor, I say have the core of your portfolio of a broadband index fund. And then, if you want to invest in renewable energies, either buy companies or buy an ETF that’s a pure renewable energy company. But don’t buy a broad-based ETF that is supposedly a great moral way to do good things for everybody and make money because you’re fooling yourself if you’re thinking those companies are all good and you’re going to make more money that way.”
Regarding the right way to look at ESG, Nadig steps in to point out that Malkiel is correct in the idea that people are rarely able to align on what qualifies when it comes to ESG.
Nadig states, “The reality is, you have to go into ESG with your own definition; what is important to you. Certain components of ESG have actually proven to be great risk management metrics. There are whole portfolios that have been very much focused on the ‘G’ in ESG, which have done quite well.”
He states how there is a net positive, and it’s not something to consider giving up. It is coming down to ESG-based considerations for companies to contribute trillions of dollars under proper allocations. To give it up entirely would be like putting oneself in front of a steamroller. Whether or not an investor believes in it, it’s important to keep paying attention.
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