Yves here. For over ten years, a big fad in investing has been “ESG” for “environment, social, governance” so that big investors supposedly direct their monies to virtuous or at least not harmful endeavors. If you’ve watched CalPERS board meetings, you can see how the staff and board love to blather about sustainable investments, since in their minds it turns tooth and claw capitalism into a feel-activity. And they get to ignore the hard questions facing CalPERS, like how employer budgets are starting to buckle over CalPERS commitments.
It’s not hard to see that this field is a scam even when the practitioners are sincere. Hoe can anything other than a small, local, largely or entirely worker owned endeavor not to be engaged in some sort of harmful activity, particularly given resource scarcity?
And for bigger companies, the use of metrics makes it easy for the gatekeepers to be fooled or fool themselves. I recall a heated argument with (now ex as a result) friends from my first-year MBA section who insisted that BP was an outstanding corporate citizen because their new better ESG scoring model said so. This was right after the Deepwater Horizon disaster had begun. They insisted the press coverage was false because it contradicted their model.
One way gatekeepers like my ex-friends get snookered is by greenwashing, as in the purveyors of various environmental-harm reducing schemes selling snake oil. Too many investors have been burned by learning that some touted tech was over-hyped or worse an open fraud, like the same carbon credits being sold multiple times.
This story mentions, but IMHO underplays, that the funds themselves are in on the con. They are paid big bucks to vet various companies and vendors for having viable programs and then delivering on their claims. The report cited indicates that the fund managers were all too happy to include companies that clearly fell afoul of their criteria, even before getting to the question of signing on for greenwashing claims.
By CityAM.com is the online presence of City A.M., London’s first free daily business newspaper. Cross posted from OilPrice
- Greenwashing, particularly in the financial sector, has significantly increased over the past five years, leading to a decrease in investments into sustainable funds.
- High-profile cases like Deutsche Bank’s DWS and Baillie Gifford have spotlighted misleading ESG claims, contributing to a lack of trust among investors.
- The study found that greenwashing accusations cause institutional investors to decrease their green fund investments by 8% and retail investors by 12.6% the following month, highlighting the urgent need for regulatory action to improve trust and transparency in sustainable investment products.
Investments into sustainable funds are reducing due to an increase in greenwashing and scepticism towards environment, social and governance focused investing, a new study has found.
The whitepaper from Elise Gourier and Helene Mathurin at ESSEC Business School found that the issue of greenwashing had become “particularly prominent in the past five years”, especially within the financial industry.
Greenwashing is when companies present misleading information about how environmentally friendly their products are.
Through using natural language processing to analyse hundreds of thousands of news articles that mention greenwashing or terms associated with it, the study tracked the prominence of the issue.
Strikingly, it found that while greenwashing had previously been focused on sectors such as the oil and gas industry or specific incidents such as the Volkswagen scandal in 2015, the recent focus on investment firms was new.
This “unprecedented” surge in the financial sector has now made investment firms the most frequent target of greenwashing accusations, with articles about greenwashing from the industry matching the combined total of those about both the energy and construction industry.
In September, Deutsche Bank’s asset management arm DWS was fined $19m by the US Securities and Exchange Commission for “materially misleading statements” about its process for incorporating ESG factors into research and investment recommendations.
Scottish asset manager Baillie Gifford also came under fire last year from Greta Thunberg, who pulled out of Edinburgh International Book Festival due to its sponsorship by the asset manager, which invests in fossil fuel companies.
Through tracking the frequency of articles like these, the study found that an uptick in greenwashing stories causes institutional investors to decrease their investments in green funds by eight per cent the following month, and retail investors by 12.6 per cent.
The paper added that retail investors and institutional investors differed in their response, with the former specifically pulling money out of funds that have strong ESG ratings, suggesting a lack of trust in the ratings themselves.
ESG ratings themselves have come under fire in recent months, with MSCI recently being accused of ‘bias’ in its ratings to push investors towards their indices.
Because of these withdrawals, this was leading to the price of sustainable firms to become warped by greenwashing, the paper argued.
New rules from the Financial Conduct Authority around greenwashing are set to be implemented from 31 May this year, with firms facing a fresh clampdown to improve the “trust and transparency of sustainable investment products”.
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While most ESG is storytelling and PR Carbon Credits and Carbon Offsets are measurable. That is where the biggest frauds have been reported in decade-old REDD+ projects.
Most projects are scams and when they are real, barely 10% of the funding reaches communities in Africa or Asia because 90% is eaten up by consultants, standards and ratings agencies and brokers.
Then you have the child deities fronting for funds and consultants who did not get to sell their ESG projects to Shells and BPs.
I’m sick of the Green Gas lighting by Exxon in their ads o podcasts. They lie blatantly about how they’re gonna provide solutions to global warming by working on hydrogen manufacture and other projects. These are the crooks that covered up the studies by their own company that concluded that fossil fuels cause global warming. Where are the regulatory agencies?
I get angrier at companies like Google and Starbucks, which seem to buy a lot more of their BS than Exxon ever did. Google makes all these claims about sustainability but that doesn’t stop them from constructing new data centers. But that’s ok according to Google because the data centers are powered by renewable energy. Could they store less personal information and reduce the overall electric demand? Of course, but that would hurt their profits. Starbucks’ business model is basically to get people to drive to their stores and buy disposable cups filled with expensive drinks. I don’t see any way how that can ever be sustainable. Perhaps they could switch their model to dine-in only and wash all mugs on-site, but that would reduce sales too much. If we want to address global warming, we need to get serious about the disposable consumerism and relentless focus on economic growth that unfortunately define our society.
Of course, both of our complaints about ESG investing only focus on the environmental part. The antiworker, antiunion positions should prevent them from being in any fund that cares about the impact on society, and no company with two types of shares should be held up as an example of good governance.
New rules for the ESG sector sounds like a good start but it needs a viable path. All capitalists are dedicated to monetary profits and those predatory profits are always, at some level, antithetical to ESG. They might want to do better but they are literally trapped. We could experiment with an ESG token which is firewalled against the predations of the monetary financial sector. That’s prolly the only way to make it believable – an ESG specific currency with its own strict rules. And glaring transparency would be good. Which could separate and protect those “profits” and insure those gains go to the right place. If ESG and dollar profits are commingled then fer shure ESG will lose. It’s a deep definitional contradiction that brings any argument to a weak conclusion.
It’s late but I just watched Steve Keen on Nate Hagen’s The Great Simplification, done in December. It is #108. It is the best one so far and I have never been able to understand Steve Keen so well. It was pretty fantastic, no holds barred about our economic and energy confusion. Steve Keen has taken off the gloves. He’s got a new book, Rebuilding the Economy From the Top Down. Sounds good.
Investing is to a green transformation as Ebola is to French kissing.
The entire cap and trade and carbon credit scam is evidence of this.
If one wants Wall Street or The City of London to support a green transition, you need to have penalties to force them to do the right thing, not incentives which will surely be gamed.