Are we misunderstanding ESG investing?
In recent weeks, we’ve often mentioned the buzz around ESG investing and greenwashing and whether—according to one claim, by a former BlackRock banker—they’re much the same thing. Regardless, the momentum behind ESG, from net inflows into new funds, to the issuing of green bonds, to the launch of new products, has been one of the financial trends of the last year. Read more
ESG is huge and terribly flawed. Now what?
A report by InfluenceMap, a London-based nonprofit, evaluates 593 equity funds with over $256 billion in total net assets and finds that “421 of them have a negative Portfolio Paris Alignment score, indicating the companies within their portfolios are misaligned from global climate targets.” Climate-themed funds fared as badly: More than half failed to match the goals of the Paris Agreement. In sum, 55 percent of funds marketed as low-carbon, fossil-fuel-free and green energy exaggerated their environmental claims, and more than 70 percent of funds promising ESG goals fell short of their targets, concludes the report.Read more
ESG needs better data, better ratings and better products
The hope is it will allow the investor to find common ESG themes that unite its diverse beneficiaries to then weave into strategy. The Aggregate Confusion Project aims to reliably assess investor preferences to enable ESG indices to be more customised and attuned to investors’ values, said Trotsky. He said the initiative is a consequence of current ESG indexes being crafted without consideration of investor preferences, and a growing belief that ESG investment urgently needs to better capture values.
Better technology and data will lead to more optimal positions, adding that data reveals which managers and companies are truly committed to improving. Read more
CII seeks better ESG disclosures under accounting rules
CII believes climate change is a systemic risk, so it is critical that investors can access clear disclosures of the risks it poses to long-term value creation by the companies in which they invest,’ he writes. ‘We also believe that ensuring climate risk is properly disclosed is vital to maintaining our efficient and vibrant capital markets and to the long-term success of investors as well as issuers.’
CII agrees with feedback received by FASB that companies are releasing inadequate information about climate risk and when it would have a material effect on an impairment analysis, fair value calculation or estimate of expected credit losses. Read more