by Karen Telleen-Lawton, Noozhawk Columnist, Read the original column at Noozhawk.com
I have been practicing ESG investing since years before the label Environment, Social responsibility, and Governance came into vogue.
Previously called Socially Responsible Investing (SRI), ESG made sense to me from two perspectives.
I wanted to put my money where my heart was, and I reasoned that companies that pledged to act ethically would be less likely to engage in activities that ultimately destroyed their value.
Could the “ethical action” hypothesis neutralize the theoretical argument that maximizing something other than profits can’t logically result in higher profits? Perhaps.
Decades into the SRI/ESG investment debate, studies have shown that overall the strategy exhibits comparable performance to investing in the general market.
For example, the Kenan Institute of Private Enterprise at University of North Carolina reports:
“Effects on operating performance appear consistently (though not uniformly) positive and suggest companies with high ESG scores are better in a number of ways.
“The evidence on investment returns is more ambiguous — some studies find the stock prices of companies with high ESG ratings outperform, but others find no measurable effects, and some even document lower monetary returns.”
Schwab’s website counsels:
“If the concept of socially responsible investing appeals to you, our research has found that you should not have to reduce your expectations when it comes to risk and return. ESG funds have done as well as other funds over time. However, there are many ESG options available and multiple ways to build an ESG portfolio. You should take into account your investment goals and risk tolerance before getting started in ESG investing.”
So you can do well and do good — that’s a win-win, right?
Apparently not for everybody: Florida Gov. Ron DeSantis criticizes climate-responsible investing, despite his state being ravaged by increased flooding, surface subsidence, extreme heat, wildfire, and drought.
He believes, “Corporations across America continue to inject an ideological agenda through our economy rather than through the ballot box.”
By his mandate, no state funds should be invested in ESG-focused funds.
Florida, along with Texas, West Virginia, Tennessee and others have withdrawn public funds from BlackRock and other money managers because they “pursue ESG goals to the detriment of purely financial returns.”
BlackRock had noted that its investors are concerned with climate change as a long-term investment challenge, and have acted accordingly.
Similarly, in November a dozen states requested to delay a routine extension of Vanguard’s authority to own energy utility shares. They argued:
“The states charged that Vanguard had breached its commitment to avoid exercising ‘any control over the day-to-day management’ of the utilities” when it voted in favor of shareholder resolutions to make more thorough disclosures of their impact on climate disruption, according to the L.A. Times’ Michael Hiltzik.
These political actions defy the reality of climate disruption. Moreover, they challenge over 30 years of expert climate science performed by oil giant Exxon from the 1970s into the 2000s.
A recent Harvard study confirms earlier research on “who knew what when,” noting that Exxon’s projection models were even more accurate than NASA’s regarding the climate impact of burning fossil fuels.
Sadly, Exxon’s public statements directly contradicted their internal scientific data.
The International Energy Agency predicted last month that solar and wind power will become the largest source of electricity generation worldwide by 2025. Public and private markets are betting on renewable energy not just in the abstract future, but for the present. ESG investments reflect this realization.
As Kermit the Frog posited in his 1970s lament, “It’s not easy being green.” Nevertheless, investing in green now can improve the current and future health of our planet and our pocketbooks.
Karen Telleen-Lawton, Noozhawk Columnist
Karen Telleen-Lawton is an eco-writer, sharing information and insights about economics and ecology, finances and the environment. Having recently retired from financial planning and advising, she spends more time exploring the outdoors — and reading and writing about it. The opinions expressed are her own.