ESG Thread

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Gaston
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ESG Thread

Post by Gaston »

I did a search on “ESG” and found 1249 hits in this forum. Mentions of ESG, however, mostly occur within threads devoted to a non-ESG topic. So I thought I’d test the waters by starting a thread on this topic. Here are some thoughts.

- Like “conscientious investing” from a couple decades ago, ESG seems to have no common definition.

- Even among proposed definitions, there is no common letter weighting. Some individuals (and funds) emphasize E, others favor S, and still others weight G more heavily.

- If the above is true, does investing in an ESG fund really suggest alignment to one’s principles? Or do such investments simply provide a feel-good factor?

- Blackrock seems to emphasize E in its recent dealings with companies. So if you invest in ANY Blackrock product, are you by default also supporting E?

- Vanguard seems to stress G in its dealings with company boards, so same question. Is an investment in ANY Vanguard fund a vote for greater across-the-board G?

- Where does ESG align with or conflict with the Boglehead philosophy?

- To what extent will ESG affect your investment decisions?

(FYI this is a learning thread for me. I’ve not yet reached any firm conclusion on ESG investing. Thx.)
“My opinions are just that - opinions.”
alex_686
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Re: ESG Thread

Post by alex_686 »

I have a fine stack of academic reports and proprietary documents that firms with high score high is ESG offer better returns than those that score low. That is, this is a valid path of active investing. Unlike many Bogleheads I am a modest advocate of activate investing. I can make a solid case of each of the letters.

However, as you suggest, ESG is hard to measure - much like beauty. It is easily gamed. The goalpost are constantly being moved because all firms are advancing. The ESG indexes are of poor quality, in my opinion.

Being a modest advocate of active investing, I can't recommend it unless you have a high conviction on a certain aspect, are willing to devote a fair amount of time and energy into researching the management of the fund, and are willing to take on specific risk. I rarely do it. I personally can't make a strong case of ESG. Maybe for E if you have a strong opinion on how climate change regulation will shake out worldwide.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
Volando
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Re: ESG Thread

Post by Volando »

I find the topic of ESG investing interesting because it's something I feel like I'd like to pursue in theory. There's certain companies that I would rather not profit from for a variety of reasons. However, whenever I dig deeper into the world of ESG funds and look at their holdings I'm left feeling that I'm no better off with them than without them. They exclude companies I may disagree with but they also includea lot that I disagree with. Just looking at one of Vanguard's funds, ESGV, I wonder what is even the purpose when I can find fault in many of the companies in their top holdings. I just can't see how you can possibly disentangle the things you like about the market from the things you don't in any meaningful way. It seems they're more designed to make you feel good about investing than to actually do good, especially since your investments don't really directly benefit companies anyway. For example, if one disagrees with holding oil companies for the way they impact the environment, you're still holdings hundreds of companies that directly or indirectly purchase oil from those companies to do things like transport goods or directly produce things that may impact the environment negatively (like Nvidia's GPUs in relation to cryptocurrency).

I hope I don't butcher this (correct me where I'm wrong!) but an argument that I find it compelling is that purchasing ESG funds may actually benefit those who disagree with ESG funds by making unfavorable stocks riskier to purchase and increasing expected returns for those investors. So while I may not be personally profiting from a company, another person will be. Then with more and more people buying into these funds, the companies that are "ESG approved" will have more people holding them which worsens my own returns. This, coupled with the fact that these funds tend to be at least somewhat more expensive in terms of fees means I have less returns by which to achieve my goals.

Then I wonder how these companies can even achieve any meaningful improvement in any of these E, S, or G factors (or whatever your funds motivation is) when the market can't agree on what ESG even means. It's a moving target and people can reasonably disagree on many of the components. So how can a company gear it's work to improve on ESG factors when nobody agrees on what it means?

I've come to the conclusion that markets have a lot of grey in them and there's no way to avoid that. So instead of going with an ESG fund that's more expensive and that hasn't convinced me that it will give me the returns I want, I decided that I'm better off buying into a total market fund and giving a portion of the money I gain to charities that do work I believe in. I've even wondered whether it may be more effective for ESG investors to invest in a total stock market fund, compile a list of companies that they disagree with, and donate gains from those companies proportional to how much they are held in a total market fund. That seems like more work than it's worth so I plan to give a flat percentage away but I think its an interesting concept.
alex_686
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Re: ESG Thread

Post by alex_686 »

Volando wrote: Mon Jun 14, 2021 5:31 pm I hope I don't butcher this (correct me where I'm wrong!) but an argument that I find it compelling is that purchasing ESG funds may actually benefit those who disagree with ESG funds by making unfavorable stocks riskier to purchase and increasing expected returns for those investors. So while I may not be personally profiting from a company, another person will be. Then with more and more people buying into these funds, the companies that are "ESG approved" will have more people holding them which worsens my own returns. This, coupled with the fact that these funds tend to be at least somewhat more expensive in terms of fees means I have less returns by which to achieve my goals.
This is half true. Generally speaking, divestment of sin stocks have had no to low impact on the stock price. The number of cases where this has had a impact are slim.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
langlands
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Re: ESG Thread

Post by langlands »

I lean more towards these investments providing a "feel good factor."

If you invest in a passive index fund (like VOO) with Blackrock or Vanguard, I don't see how you're directly supporting E or G. Of course you as a customer are supporting a business that is aggressively pursuing these initiatives. Just like by ordering from Taco Bell, you're indirectly supporting KFC (both owned by the same parent company).

See below. I believe that yes, investing in any Blackrock or Vanguard fund does support whatever initiatives they pursue since they can vote your shares. To elaborate on this, I in fact think that ESG funds won't really be relevant in the future. There is increasing momentum behind the idea that to really effect change, investors should specifically attempt to seek out "dirty" companies to clean them up as opposed to avoiding them. If this idea takes hold, then the idea of an ESG fund is actually backwards. ESG-focused investors should in fact try to invest in as many dirty companies as possible and force a proxy battle. Since many asset management firms like Blackrock and Vanguard are ESG-focused and given how popular passive investing is, this will be pretty easy to do.

I don't own ESG funds and am skeptical. From a conceptual point of view, I think it is important to realize that there is immediate tension with the efficient markets hypothesis. The whole point of ESG is that you are constraining your investment universe for a purpose that is not profit-maximizing. A constrained optimum can at best match an unconstrained one, so the market would have to be inefficient for ESG to outperform. It's possible that ESG is actually a source of alpha, that for some reason companies positively loaded on the ESG factor are systematically undervalued, but this would be a market inefficiency.

The more logically consistent position to me is that its a form of charity: ESG investors recognize that they will get inferior returns, but accept this comfortable in the knowledge that their money is doing good in the world, i.e. they are not profit-maximizing investors. Certainly this is a sensible position, but as alex_686 says above, the implementation of the indices are wanting thus far so it's not clear to me that the companies selected for are actually much better. This is not even discussing the more contentious areas of ESG where some investors might feel the initiatives are actively harming the world.

For more on the skeptical take, you can read this blogpost by an NYU finance professor:

https://aswathdamodaran.blogspot.com/20 ... tical.html
Last edited by langlands on Mon Jun 14, 2021 6:19 pm, edited 3 times in total.
alex_686
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Re: ESG Thread

Post by alex_686 »

Volando wrote: Mon Jun 14, 2021 5:31 pm Then I wonder how these companies can even achieve any meaningful improvement in any of these E, S, or G factors (or whatever your funds motivation is) when the market can't agree on what ESG even means. It's a moving target and people can reasonably disagree on many of the components. So how can a company gear it's work to improve on ESG factors when nobody agrees on what it means?
It is not as bad as you imply. It is a little like a beauty contest. The judging is highly selective yet judges tend to agree on their rankings. Same thing here. You poll leading experts. Even though they are independent you do get a consensus. The problem is that this make for a very poor index construction. You can say that X is more beautify than Y. You can't say that X is 10% more beautify, up from 5% last year. Or given a pool of models, you can say that the top 3 are worthy to be supermodel. In some year it may be just the top 2, in another it may be the top 5.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
alex_686
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Re: ESG Thread

Post by alex_686 »

langlands wrote: Mon Jun 14, 2021 5:45 pm If you invest in a passive index fund (like VOO) with Blackrock or Vanguard, I don't see how you're directly supporting E or G.
I am missing your point.

G stands for governance. This is the theory that a strong independent competent board adds value. The company will be less likely to blow up due to fraud, ethical lapses, or poorly conceived adventures. You want to make sure that the company is acting in the best interests of the shareholders, not the managers.

Vanguard and Blackrock can do this by voting their proxies. Their history on this issue is a bit erratic. Anyways, it is the shareholders that drive G, not the customers.

I can also make a solid argument on E and S.
Last edited by alex_686 on Mon Jun 14, 2021 5:54 pm, edited 1 time in total.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
langlands
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Re: ESG Thread

Post by langlands »

alex_686 wrote: Mon Jun 14, 2021 5:53 pm
langlands wrote: Mon Jun 14, 2021 5:45 pm If you invest in a passive index fund (like VOO) with Blackrock or Vanguard, I don't see how you're directly supporting E or G.
I am missing your point.

G stands for governance. This is the theory that a strong independent competent board adds value. The company will be less likely to blow up due to fraud, ethical lapses, or poorly conceived adventures. You want to make sure that the company is acting in the best interests of the shareholders, not the managers.

Vanguard and Blackrock can do this by voting their proxies. Their history on this issue is a bit erratic. Anyways, it is the shareholders that drive G, not the customers.

I can also make a solid argument on E and S.
By "customers" I meant customers of the brokerage firms, not customers of the companies of the various stocks in the fund, i.e. I am talking about the shareholders.

Yes, you're right. My mind wandered towards what I would ideally like happen than what actually does. Vanguard and Blackrock can indeed vote all the passive investor shares as they like. This is what happened in the surprise vote recently with Exxon Mobil.
Makefile
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Re: ESG Thread

Post by Makefile »

alex_686 wrote: Mon Jun 14, 2021 4:50 pm I have a fine stack of academic reports and proprietary documents that firms with high score high is ESG offer better returns than those that score low. That is, this is a valid path of active investing. Unlike many Bogleheads I am a modest advocate of activate investing. I can make a solid case of each of the letters.

However, as you suggest, ESG is hard to measure - much like beauty. It is easily gamed. The goalpost are constantly being moved because all firms are advancing. The ESG indexes are of poor quality, in my opinion.

Being a modest advocate of active investing, I can't recommend it unless you have a high conviction on a certain aspect, are willing to devote a fair amount of time and energy into researching the management of the fund, and are willing to take on specific risk. I rarely do it. I personally can't make a strong case of ESG. Maybe for E if you have a strong opinion on how climate change regulation will shake out worldwide.
I wonder how many purchasers of ESG funds are actually motivated by what they think might be a higher return. In their marketing they've always seemed more like investing in a way that reflects your values. So almost like a "Whole Foods" investing (cage-free eggs, fair trade coffee, oil and gas-free investments).

Vanguard's ESG page https://investor.vanguard.com/investing/esg/ seems cautious not to make any claims that ESG is a way to screen for higher return.
Tanelorn
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Re: ESG Thread

Post by Tanelorn »

Seems to me ESG is a popular investment fad, used by marketers to gather assets charge higher expenses while selling you “feel good” non-monetary ideas. Lately, because ESG become very popular and seen large inflows of funds, the stocks and funds that were largely deemed “good” by ESG metrics got bid up and consequently many of these funds have better than average short term track records.

Like any fad, when it falls out of favor, the outflows will lead to losses and underperformance instead of gains and outperformance.
JustGotScammed
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Re: ESG Thread

Post by JustGotScammed »

IBM literally administers the criteria for most ESG investing platforms and IBM literally sold hardware that was used in the Holocaust.

https://www.ibm.org/responsibility

https://archive.nytimes.com/www.nytimes ... ----------

Moral of the story: Be careful with self-proclaimed dogooders. ESG investing, like anything else, has more marketing than substance.
harmony
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Re: ESG Thread

Post by harmony »

I was an SRI investor since I began in the early eighties (not a fad for me then, or now). I have since incorporated ESG. I am a charity investor, but I also don’t want any clunker funds. I’ve used Social Investment Forum in its time, then the internet’s tools as they became available. The most useful tool that I’ve come across because it is so precise is https://www.asyousow.org/invest-your-values. As you can see, you can pick among seven different values to see how any fund or ETF stacks up against or overlaps with these values. For example, if a fund has an F for one of its grades, click on that F and it will link you to the offending stock and give the components of the score. Pick whatever value/s mean the most to you, then check on the other values that are expressed or squelched. I know Morningstar has a Sustainability score, but As You Sow seems much more transparent, and therefore helpful to me.

As You Sow is a nonprofit organization that promotes environmental and social corporate responsibility through shareholder advocacy, coalition building, and innovative legal strategies. As You Sow does not provide investment, financial planning, legal, or tax advice. (quoted from their website)
grog
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Re: ESG Thread

Post by grog »

Until recently, I always regarded ESG as a niche offering that I had no personal interest in. But this past year I've read some things that have concerned me about the broader effects of it, in particular, how it opens the door to have corporate governance decisions dictated by a relatively small number of giant asset management companies.

The following is from a NYT article from earlier this year. This article set off alarm bells for me.
https://www.nytimes.com/2021/01/26/busi ... imate.html
Mr. Fink is now calling on all companies [to do such-and-such, never mind the specifics]. “We expect you to disclose how this plan is incorporated into your long-term strategy and reviewed by your board of directors,” he wrote.

When Mr. Fink makes what sounds like a request, in truth it is much more than that. BlackRock’s size gives it enormous influence: Mr. Fink can seek to oust directors of companies that he doesn’t believe are heeding his call, and he can dump the shares of companies owned by the firm’s actively managed funds. Last year, the firm voted against 69 companies and against 64 directors for climate-related reasons, while putting 191 companies “on watch.”

Of course, the firm is unable to sell the shares of companies in passive indexes like those that track the S&P 500 (which remain a huge portion of its assets under management). But increasingly, BlackRock is creating sustainability-oriented index funds that have discretion in selecting which companies to include or exclude.
Right now since so much of the money is straight index money, it will probably be a while before this issue is of much practical importance. But it's clear that BlackRock, based on their own public statements, would prefer to have that money in custom ESG "indexes" of their own design. If people voluntarily choose to pile into these funds, then there's authentic demand for this and investors have spoken. But even in that case why should BlackRock, Vanguard, etc be the ones to determine these ESG criteria and to enforce them simply by virtue of having trillions of assets AUM? Another issue I foresee is that there are a lot of ways for them to put their thumb on the scale and try to steer money into these funds (through 401k plans for instance).

Some previous discussions on the issue of corporate governance and indexing more broadly.
viewtopic.php?t=52673
viewtopic.php?p=427157
viewtopic.php?t=202324
viewtopic.php?t=136436
viewtopic.php?t=298411
Apathizer
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Re: ESG Thread

Post by Apathizer »

Until about 2 years ago I was an ESG investor with Parnassus for almost 20 years. While their funds generally perform comparably to the market, after gaining better understanding of how financial markets work, I now understand ESG doesn't make as much difference as I thought for a couple reasons:

- Like most actively managed funds, most ESG funds have limited holdings, typically about 40. They only have influence with these companies, and not the rest of the market.

- Making substantive change requires better regulation and enforcement, esp environmental concerns like lower emissions and pollution.

Green companies have lower expected returns, though to what degree is debatable. If you want to implement beneficial change, donating to and working for issues that are important to you is more effective. If you're concerned about climate change, donate to environmental organizations and work for better emission regulations and laws. If you' want employees to be paid and treated better work to raise the minimum wage and improve working conditions.

Such actions have more impact that ESG investing does.
https://www.vox.com/the-goods/22714761/ ... imate-401k
https://www.vox.com/future-perfect/2018 ... sri-report
https://www.youtube.com/watch?v=weVAN2HxXjk
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wfrobinette
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Re: ESG Thread

Post by wfrobinette »

Apathizer wrote: Thu Dec 02, 2021 10:11 pm Until about 2 years ago I was an ESG investor with Parnassus for almost 20 years. While their funds generally perform comparably to the market, after gaining better understanding of how financial markets work, I now understand ESG doesn't make as much difference as I thought for a couple reasons:

- Like most actively managed funds, most ESG funds have limited holdings, typically about 40. They only have influence with these companies, and not the rest of the market.

- Making substantive change requires better regulation and enforcement, esp environmental concerns like lower emissions and pollution.

Green companies have lower expected returns, though to what degree is debatable. If you want to implement beneficial change, donating to and working for issues that are important to you is more effective. If you're concerned about climate change, donate to environmental organizations and work for better emission regulations and laws. If you' want employees to be paid and treated better work to raise the minimum wage and improve working conditions.

Such actions have more impact that ESG investing does.
https://www.vox.com/the-goods/22714761/ ... imate-401k
https://www.vox.com/future-perfect/2018 ... sri-report
https://www.youtube.com/watch?v=weVAN2HxXjk
But Vanguard and others now have index fund with 1500+ companies and the ER is 0.12

Though Nvidia is a top 10 and their products are directly involved in the ridiculous consumption of energy causes by crypto. I'm sure one could find fault in a lot of companies there.

Now to my real points Not all directed to you.

1. I agree that working and donating to the causes are extremely important and it is certainly more effective to get laws changed at least in other countries. Plus ESG investing does nothing about privately held companies. Example: We have a paper company owned by Robert Kraft in SC just across the border from Charlotte. They changed from white paper to brown paper when the demand for cardboard skyrocketed. They have been releasing all sorts of chems into the air for the last 12-15 months that are making people sick . They finally received notice from the EPA they have to clean up their act or face fines. Honestly, when a state government wants to protect tax dollars and income for 400 residents at the expense of harming thousands do we really have a chance at passing meaningful laws?

2. If one disagrees with fossil fuel, defense, low wages, poor governance, etc. wouldn't it be hypocritical to receive profits from said companies? I believe so. Have I changed my investments yet? No, but I am seriously considering it. Will I miss returns? Maybe. Heck, I still support fossil fuels because I still have ICE vehicles. So should I not try to recoup that money though investments? Probably.

3. If more investors start dumping traditional large blends for ESGV wouldn't those outflows penalize companies not in ESG? I would think yes if the funds/etfs started taking in decent money. ESGV is at $6.5billion and growing. VSGX is roughly 1/2 that. Small drop in the bucket now, I know.

4. I agree the whole thing has a marketing component too. My company is preaching sustainability and we even have performance bonuses tied to metrics. However, we just started making office workers commute back into the office 60% of the time and none of the CO2 production is going to be factored into the metrics. Plus all of the energy used in the building is not clean either. The average car driving 15k miles is putting ~6 tons of CO2 out or 800 pounds every 1000 miles. That was shocking when I read those numbers. Point is, are these things being considered into the equation when determining a companies ESG score? Doubtful. Should they be counted? Most certainly.

It's a double edged sword.
DarkMatter731
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Re: ESG Thread

Post by DarkMatter731 »

Gaston wrote: Mon Jun 14, 2021 4:36 pm I did a search on “ESG” and found 1249 hits in this forum. Mentions of ESG, however, mostly occur within threads devoted to a non-ESG topic. So I thought I’d test the waters by starting a thread on this topic. Here are some thoughts.

- Like “conscientious investing” from a couple decades ago, ESG seems to have no common definition.

- Even among proposed definitions, there is no common letter weighting. Some individuals (and funds) emphasize E, others favor S, and still others weight G more heavily.

- If the above is true, does investing in an ESG fund really suggest alignment to one’s principles? Or do such investments simply provide a feel-good factor?

- Blackrock seems to emphasize E in its recent dealings with companies. So if you invest in ANY Blackrock product, are you by default also supporting E?

- Vanguard seems to stress G in its dealings with company boards, so same question. Is an investment in ANY Vanguard fund a vote for greater across-the-board G?

- Where does ESG align with or conflict with the Boglehead philosophy?

- To what extent will ESG affect your investment decisions?

(FYI this is a learning thread for me. I’ve not yet reached any firm conclusion on ESG investing. Thx.)
I find ESG so dumb.

It's the new fad that's really picked up so much steam over these past few years.

The firm I'll be working at seems to emphasise it in all of our firm literature because it's the buzz word institutional investors are going crazy for.

I'm much more cynical about ESG as a concept.
aristotelian
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Re: ESG Thread

Post by aristotelian »

I am very skeptical that ESG investing has any impact on climate change since owning a company's stock does not make the company profitable, and ESG criteria are notoriously nebulous.

That said, these days it is possible to get cheap ESG index funds that are reasonably diversified. I see little downside for the investor. They are taking slightly higher risk but they are just as likely to outperform as underperform. I don't begrudge anyone who wants to hold them instead of the total market. The best use case is someone who simply has a moral issue with profiting from the excluded companies (regardless of any social change effect).
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mrmass
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Re: ESG Thread

Post by mrmass »

DarkMatter731 wrote: Wed Jan 26, 2022 9:19 am
Gaston wrote: Mon Jun 14, 2021 4:36 pm I did a search on “ESG” and found 1249 hits in this forum. Mentions of ESG, however, mostly occur within threads devoted to a non-ESG topic. So I thought I’d test the waters by starting a thread on this topic. Here are some thoughts.

- Like “conscientious investing” from a couple decades ago, ESG seems to have no common definition.

- Even among proposed definitions, there is no common letter weighting. Some individuals (and funds) emphasize E, others favor S, and still others weight G more heavily.

- If the above is true, does investing in an ESG fund really suggest alignment to one’s principles? Or do such investments simply provide a feel-good factor?

- Blackrock seems to emphasize E in its recent dealings with companies. So if you invest in ANY Blackrock product, are you by default also supporting E?

- Vanguard seems to stress G in its dealings with company boards, so same question. Is an investment in ANY Vanguard fund a vote for greater across-the-board G?

- Where does ESG align with or conflict with the Boglehead philosophy?

- To what extent will ESG affect your investment decisions?

(FYI this is a learning thread for me. I’ve not yet reached any firm conclusion on ESG investing. Thx.)
I find ESG so dumb.

It's the new fad that's really picked up so much steam over these past few years.

The firm I'll be working at seems to emphasise it in all of our firm literature because it's the buzz word institutional investors are going crazy for.

I'm much more cynical about ESG as a concept.
Might be dumb, and fuzzy on compliance but my employer is paying a lot of attention to it. Brought up in almost every all-hands meetings.

We're striving to get rated high in ESG. This is to appease a segment of investors and analysts that follow ESG.
Iorek
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Re: ESG Thread

Post by Iorek »

Like others I am very interested in ESG in theory but it’s very hard to do in practice. I think in general it gets no respect on this board and I don’t really look to this board for information about it (not sure if this thread will reinforce or counter that trend but so far seems to be the former).

I think there are some funds that are serious about it and do a good job and some that just do a screen and it’s not clear what that accomplishes.

I also think the bigger question is how Vanguard and Blackrock vote “their” (our) shares in proxy votes. I would actually like to see index funds that outline in advance how they evaluate when to oppose management on proxies and then people could get better representation in “corporate democracy” that way, which I think is probably more important than a screen for certain products.

There is actually one S&P 500 fund trying to do that now— ETF is VOTE. Not sure what the ER is but I’d be happy to pay a few basis points for someone to be active in getting boards to focus on ESG substance.
wfrobinette
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Re: ESG Thread

Post by wfrobinette »

mrmass wrote: Wed Jan 26, 2022 9:43 am
DarkMatter731 wrote: Wed Jan 26, 2022 9:19 am
Gaston wrote: Mon Jun 14, 2021 4:36 pm I did a search on “ESG” and found 1249 hits in this forum. Mentions of ESG, however, mostly occur within threads devoted to a non-ESG topic. So I thought I’d test the waters by starting a thread on this topic. Here are some thoughts.

- Like “conscientious investing” from a couple decades ago, ESG seems to have no common definition.

- Even among proposed definitions, there is no common letter weighting. Some individuals (and funds) emphasize E, others favor S, and still others weight G more heavily.

- If the above is true, does investing in an ESG fund really suggest alignment to one’s principles? Or do such investments simply provide a feel-good factor?

- Blackrock seems to emphasize E in its recent dealings with companies. So if you invest in ANY Blackrock product, are you by default also supporting E?

- Vanguard seems to stress G in its dealings with company boards, so same question. Is an investment in ANY Vanguard fund a vote for greater across-the-board G?

- Where does ESG align with or conflict with the Boglehead philosophy?

- To what extent will ESG affect your investment decisions?

(FYI this is a learning thread for me. I’ve not yet reached any firm conclusion on ESG investing. Thx.)
I find ESG so dumb.

It's the new fad that's really picked up so much steam over these past few years.

The firm I'll be working at seems to emphasise it in all of our firm literature because it's the buzz word institutional investors are going crazy for.

I'm much more cynical about ESG as a concept.
Might be dumb, and fuzzy on compliance but my employer is paying a lot of attention to it. Brought up in almost every all-hands meetings.

We're striving to get rated high in ESG. This is to appease a segment of investors and analysts that follow ESG.
Mine too! We have CO2 metrics that we track.

And if you want to do business with certain countries in the future you better have your ESG ducks in a row. Example in point. Countries have already imposed very aggressive dates for bans on ICE. Just look at the traction EVs are getting from established automakers. I wouldn't be surprised to see sanctions imposed in the future. Companies can bury their heads in the sand and ignore what's happening around them or play the game to win. I'd rather have my money on companies that are taking this global movement seriously than this decades equivalent of Kodak and all the other who refused to budge.

And to the guy that says it's the buzzwords institutional investors use. Why do you think that is?

I can't go any further on the discussion here because it would be against forum rules.
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BrooklynInvest
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Re: ESG Thread

Post by BrooklynInvest »

Couple of things -

Morningstar, MSCI and others score firms on very specific and documented ESG criteria. Firms can choose to improve their ratings or not. But for a firm to score low on "governance" certainly suggest that there is at least headwinds facing the firm and its stock, no?

Institutional investors care because the people they manage money for care. Me, I'd very much prefer to invest in companies with strong governance and sound environmental and social practices.

Granted, I'd rather not pay large cap gains to make that asset transfer so there's definitely a limit to my advocacy ;-)
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Re: ESG Thread

Post by alex_686 »

aristotelian wrote: Wed Jan 26, 2022 9:37 am I am very skeptical that ESG investing has any impact on climate change since owning a company's stock does not make the company profitable, and ESG criteria are notoriously nebulous.

That said, these days it is possible to get cheap ESG index funds that are reasonably diversified. I see little downside for the investor. They are taking slightly higher risk but they are just as likely to outperform as underperform. I don't begrudge anyone who wants to hold them instead of the total market. The best use case is someone who simply has a moral issue with profiting from the excluded companies (regardless of any social change effect).
I will modestly take the other side on both points.

Companies with strong E,S, or G characteristics tend to outperform their peers. E companies tend not to have to deal with costs of cleaning up toxic waste site. S's tend to have higher employee engagement, so lower turnover and higher productivity. G's have less corporate fraud. etc. The history of ESG active managers is pretty good.

That being said, I have a rather low opinion of ESG indexes. The screens off all the ESG indexes that I have seen are objective and simple and thus naive. Some sectors are overweighted not becuase they display a high level of ESG. Rather it is sectors where it is relatively easy to check the boxes required.
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Re: ESG Thread

Post by aristotelian »

alex_686 wrote: Wed Jan 26, 2022 11:05 am
aristotelian wrote: Wed Jan 26, 2022 9:37 am I am very skeptical that ESG investing has any impact on climate change since owning a company's stock does not make the company profitable, and ESG criteria are notoriously nebulous.

That said, these days it is possible to get cheap ESG index funds that are reasonably diversified. I see little downside for the investor. They are taking slightly higher risk but they are just as likely to outperform as underperform. I don't begrudge anyone who wants to hold them instead of the total market. The best use case is someone who simply has a moral issue with profiting from the excluded companies (regardless of any social change effect).
I will modestly take the other side on both points.

Companies with strong E,S, or G characteristics tend to outperform their peers. E companies tend not to have to deal with costs of cleaning up toxic waste site. S's tend to have higher employee engagement, so lower turnover and higher productivity. G's have less corporate fraud. etc. The history of ESG active managers is pretty good.

That being said, I have a rather low opinion of ESG indexes. The screens off all the ESG indexes that I have seen are objective and simple and thus naive. Some sectors are overweighted not becuase they display a high level of ESG. Rather it is sectors where it is relatively easy to check the boxes required.
Vangaurd's oldest ESG fund, VFTNX, has underperformed VTSAX if you go back far enough (11.8% vs 11.3% CAGR). There was a time when oil was doing well and everybody (even many Bogleheads) accepted it as fact that ESG funds inherently underperform. I see no compelling reason to expect higher return that isn't already priced into the market and would not use (recent) past performance as a reason to choose ESG funds.
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Re: ESG Thread

Post by alex_686 »

aristotelian wrote: Wed Jan 26, 2022 11:16 am Vangaurd's oldest ESG fund, VFTNX, has underperformed VTSAX if you go back far enough (11.8% vs 11.3% CAGR). There was a time when oil was doing well and everybody (even many Bogleheads) accepted it as fact that ESG funds inherently underperform. I see no compelling reason to expect higher return that isn't already priced into the market and would not use (recent) past performance as a reason to choose ESG funds.
It has been a while since I have done a deep dive on the relative performance but I pretty sure you are using the wrong metric. You just can't take a arbitrary timeframe and slap a returns chart on top.

ESG companies tend to skew towards value and small cap so you will need to make adjustments for that. At least 10 years ago. I suspect that the newer indexes will skew in a different direct. Plus you need to adjusted for risk / volatility.

After these adjustments, but before a active manager's fee, ESG funds have beaten their peers by 1% or so.
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Re: ESG Thread

Post by grogu »

Are there any anti-ESG funds? I know there are "sin stocks," and one could always short an ESG fund, but I'm talking about funds that invest in anti-environmental regulation, anti-politically liberal positions/companies (not trying to engage in political debate, just my assessment of what ESG is).
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Re: ESG Thread

Post by aristotelian »

alex_686 wrote: Wed Jan 26, 2022 11:22 am
aristotelian wrote: Wed Jan 26, 2022 11:16 am Vangaurd's oldest ESG fund, VFTNX, has underperformed VTSAX if you go back far enough (11.8% vs 11.3% CAGR). There was a time when oil was doing well and everybody (even many Bogleheads) accepted it as fact that ESG funds inherently underperform. I see no compelling reason to expect higher return that isn't already priced into the market and would not use (recent) past performance as a reason to choose ESG funds.
It has been a while since I have done a deep dive on the relative performance but I pretty sure you are using the wrong metric. You just can't take a arbitrary timeframe and slap a returns chart on top.

ESG companies tend to skew towards value and small cap so you will need to make adjustments for that. At least 10 years ago. I suspect that the newer indexes will skew in a different direct. Plus you need to adjusted for risk / volatility.

After these adjustments, but before a active manager's fee, ESG funds have beaten their peers by 1% or so.
I took the longest possible time frame for the existence of the fund. VFTNX is stated to be a large blend, same category as VTSAX. Yes it is possible that ESG outperformed over other time frames. Either way I would not expect higher performance in the future since the market already knows their positive attributes.
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Re: ESG Thread

Post by aristotelian »

grogu wrote: Wed Jan 26, 2022 11:55 am Are there any anti-ESG funds? I know there are "sin stocks," and one could always short an ESG fund, but I'm talking about funds that invest in anti-environmental regulation, anti-politically liberal positions/companies (not trying to engage in political debate, just my assessment of what ESG is).
Any Energy sector fund.
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Re: ESG Thread

Post by JackoC »

aristotelian wrote: Wed Jan 26, 2022 12:01 pm
Either way I would not expect higher performance in the future since the market already knows their positive attributes.
This IMO must be the strong presumption unless you pretty totally disbelieve in market efficiency. I don't write off the possibility that obscure measures of relative value might pan out to higher risk adjusted returns looking forward, but that any common 'ESG-ish' measure, under the white hot spotlight of public attention, would be a way to identify *future* superior returns, seems really doubtful to me.

I recommend (I didn't see it mentioned but might have missed it) James Mackintosh's series of ('Streetwise') columns in the WSJ about ESG, latest was yesterday. He gives examples of green investing plays pretty much by definition a sucker bet (from a purely risk/return perspective) like 'green bonds' some other rich country governments (not the US, yet at least) now issue. You get X less bps for the same credit because they say the proceeds will be used for public spending to increase greenness. People thinking this is a win-win, green plus smart investing, must be confusing themselves. It might be a way to encourage more public green spending (by presenting a cheaper source of funds) but it can't also be a win for investors getting the lower return.

This is IMO overwhelmingly likely the case with ESG equity investing in long run also as he concludes, to quote him: 'If ESG truly offers rewards to investors, it brings no virtue. If it is virtuous, expect a lower reward'. This again after discarding the farfetched hypothesis that some form of high ESG score would, *looking forward* (the only direction that matters in investing) be a way of identifying undervalued companies. Because with regard to ESG or anything else, establishing that a company is better managed does not establish that it's a better investment. You have to believe the attribute you tout for stock picking correlates with better management *not already recognized by the market*. That again seems to me especially unlikely for measures as widely and intensely touted as ESG.
Last edited by JackoC on Wed Jan 26, 2022 12:42 pm, edited 1 time in total.
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Re: ESG Thread

Post by gougou »

aristotelian wrote: Wed Jan 26, 2022 12:02 pm
grogu wrote: Wed Jan 26, 2022 11:55 am Are there any anti-ESG funds? I know there are "sin stocks," and one could always short an ESG fund, but I'm talking about funds that invest in anti-environmental regulation, anti-politically liberal positions/companies (not trying to engage in political debate, just my assessment of what ESG is).
Any Energy sector fund.
Yeah, but why should oil & gas producers be blamed for CO2 if there’s a demand for their product? If I don’t produce it someone else will produce it to meet the demand, or everybody suffers from shortages and high energy prices. I think there are some serious flaws to always give oil & gas companies extremely low ESG ratings.
The sillier the market’s behavior, the greater the opportunity for the business like investor.
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Re: ESG Thread

Post by JackoC »

gougou wrote: Wed Jan 26, 2022 12:42 pm
aristotelian wrote: Wed Jan 26, 2022 12:02 pm
grogu wrote: Wed Jan 26, 2022 11:55 am Are there any anti-ESG funds? I know there are "sin stocks," and one could always short an ESG fund, but I'm talking about funds that invest in anti-environmental regulation, anti-politically liberal positions/companies (not trying to engage in political debate, just my assessment of what ESG is).
Any Energy sector fund.
Yeah, but why should oil & gas producers be blamed for CO2 if there’s a demand for their product? If I don’t produce it someone else will produce it to meet the demand, or everybody suffers from shortage and high energy prices. I think there are some serious flaws to always give oil & gas companies extremely low ESG ratings.
Re my just previous post, Mackintosh also goes over this. The divestiture of oil/gas assets in recent years by some Western oil majors (European more than the US, I recommend last week's Economist article on that) achieves nothing directly to reduce hydrocarbon production. Somebody bought those assets planning to drill/produce the hydrocarbons. There would have to be another piece to the process to reduce hydrocarbon production. MacKintosh perhaps somewhat fancifully gives the example of super rich green investors buying the assets then shutting down the business and taking a big loss. That could happen but we probably shouldn't hold our breath for it to become a major trend. The other more plausible possibility is that the administrative state does relatively quiet things to strangle the now smaller companies owning the assets, eg. it might be easier for financial regulators to pressure banks not to lend to Acme Independent Drilling than to cut off XOM from the bond market. Although, the buyers aren't necessarily small companies, that's not the market acting and how regulators will act depends on future electoral outcomes anyway. Though by the same token depending on electoral outcomes governments could just legislate out in the open to restrict hydrocarbon production, which would actually accomplish it, if so.

Also, the bulk of the world's hydrocarbon reserves are either owned by national energy companies in developing countries especially or ostensibly shareholder owned companies in countries where the central government tells them directly what to do (eg. Russia), not a matter of just gray area pressure like with Western regulators. Nor, to return to the original point, are Energy Sector Funds invested by production amount, they are invested by market cap, and limited to basically one country in case of the best known one, XLE.
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Re: ESG Thread

Post by alex_686 »

gougou wrote: Wed Jan 26, 2022 12:42 pm Yeah, but why should oil & gas producers be blamed for CO2 if there’s a demand for their product? If I don’t produce it someone else will produce it to meet the demand, or everybody suffers from shortages and high energy prices. I think there are some serious flaws to always give oil & gas companies extremely low ESG ratings.
Becuase it is a clear objective measure. Clear objective variables are considered a positive in index construction.

ESG characteristics tend to be subjective and vary over time.

In my opinion there are no good ways to address these flaws. I think ESG investing is valid but the indexes tend to be second rate.
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Re: ESG Thread

Post by Tommy »

Good article about ESG investment
https://www.wsj.com/articles/esg-invest ... mail_share
I personally don't care about ESG. Money don't smell.
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Re: ESG Thread

Post by Broken Man 1999 »

I am skeptical of ESG in general.

My skepticism seems justified after reading an article in Bloomberg Business discussing a major player rating company (MSCI)

https://www.bloomberg.com/graphics/2021 ... ttom-line/

Check out the items that peg MSCI's ESG meter.

Seems MSCI ESG is a scam to me.

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Re: ESG Thread

Post by km91 »

One can't help but point out the similarities between ESG today and the emerging markets debt craze of the 90s. A feel good narrative wrapped up in the promise of higher returns. Not only are you heling to make the world a better place, you're making money doing it. What followed in the 90's was a string of high profile sovereign debt crisis (Thailand, Russia, Argentina). We will have to wait to see how the ESG trend shakes out
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Re: ESG Thread

Post by Apathizer »

wfrobinette wrote: Wed Jan 26, 2022 9:03 am
Apathizer wrote: Thu Dec 02, 2021 10:11 pm Until about 2 years ago I was an ESG investor with Parnassus for almost 20 years. While their funds generally perform comparably to the market, after gaining better understanding of how financial markets work, I now understand ESG doesn't make as much difference as I thought for a couple reasons:

- Like most actively managed funds, most ESG funds have limited holdings, typically about 40. They only have influence with these companies, and not the rest of the market.

- Making substantive change requires better regulation and enforcement, esp environmental concerns like lower emissions and pollution.

Green companies have lower expected returns, though to what degree is debatable. If you want to implement beneficial change, donating to and working for issues that are important to you is more effective. If you're concerned about climate change, donate to environmental organizations and work for better emission regulations and laws. If you' want employees to be paid and treated better work to raise the minimum wage and improve working conditions.

Such actions have more impact that ESG investing does.
https://www.vox.com/the-goods/22714761/ ... imate-401k
https://www.vox.com/future-perfect/2018 ... sri-report
https://www.youtube.com/watch?v=weVAN2HxXjk
But Vanguard and others now have index fund with 1500+ companies and the ER is 0.12

Though Nvidia is a top 10 and their products are directly involved in the ridiculous consumption of energy causes by crypto. I'm sure one could find fault in a lot of companies there.

Now to my real points Not all directed to you.

1. I agree that working and donating to the causes are extremely important and it is certainly more effective to get laws changed at least in other countries. Plus ESG investing does nothing about privately held companies. Example: We have a paper company owned by Robert Kraft in SC just across the border from Charlotte. They changed from white paper to brown paper when the demand for cardboard skyrocketed. They have been releasing all sorts of chems into the air for the last 12-15 months that are making people sick . They finally received notice from the EPA they have to clean up their act or face fines. Honestly, when a state government wants to protect tax dollars and income for 400 residents at the expense of harming thousands do we really have a chance at passing meaningful laws?

2. If one disagrees with fossil fuel, defense, low wages, poor governance, etc. wouldn't it be hypocritical to receive profits from said companies? I believe so. Have I changed my investments yet? No, but I am seriously considering it. Will I miss returns? Maybe. Heck, I still support fossil fuels because I still have ICE vehicles. So should I not try to recoup that money though investments? Probably.

3. If more investors start dumping traditional large blends for ESGV wouldn't those outflows penalize companies not in ESG? I would think yes if the funds/etfs started taking in decent money. ESGV is at $6.5billion and growing. VSGX is roughly 1/2 that. Small drop in the bucket now, I know.

4. I agree the whole thing has a marketing component too. My company is preaching sustainability and we even have performance bonuses tied to metrics. However, we just started making office workers commute back into the office 60% of the time and none of the CO2 production is going to be factored into the metrics. Plus all of the energy used in the building is not clean either. The average car driving 15k miles is putting ~6 tons of CO2 out or 800 pounds every 1000 miles. That was shocking when I read those numbers. Point is, are these things being considered into the equation when determining a companies ESG score? Doubtful. Should they be counted? Most certainly.

It's a double edged sword.
2. I think a more effective approach would be to change your lifestyle so that you consume less. The market reacts to consumer demand more than ESG allocation. If consumers consume less and have a more environmentally responsible lifestyle, the market will respond accordingly.

For instance, I don't have an ESG portfolio but I don't own a car and seldom drive. I walk, bike or take public transit most places. I generally don't consume very much compared to most people. If more people had a similar lifestyle where they consume less, that would have a significantly better effect than ESG allocation.

I have neighbors who are ESG investors, but they have two cars and drive much more than I do. Since they consume fossil fuels, it is hypocritical for them not to invest in fossil fuel companies.

3. No, watch the Felix vid. It might have some beneficial effects, but mostly what it does is lower the expected return of ESG companies compared to the preference free market. Again the Felix video explains this better than I can.

So overall ESG allocation doesn't seem to have as much benefit as investors who advocate it might think. It's probably better than nothing, but a more effective approach would be to donate and work for issues that are important to you.
Last edited by Apathizer on Thu Jan 27, 2022 10:39 am, edited 1 time in total.
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Re: ESG Thread

Post by wfrobinette »

Apathizer wrote: Wed Jan 26, 2022 6:58 pm
wfrobinette wrote: Wed Jan 26, 2022 9:03 am
Apathizer wrote: Thu Dec 02, 2021 10:11 pm Until about 2 years ago I was an ESG investor with Parnassus for almost 20 years. While their funds generally perform comparably to the market, after gaining better understanding of how financial markets work, I now understand ESG doesn't make as much difference as I thought for a couple reasons:

- Like most actively managed funds, most ESG funds have limited holdings, typically about 40. They only have influence with these companies, and not the rest of the market.

- Making substantive change requires better regulation and enforcement, esp environmental concerns like lower emissions and pollution.

Green companies have lower expected returns, though to what degree is debatable. If you want to implement beneficial change, donating to and working for issues that are important to you is more effective. If you're concerned about climate change, donate to environmental organizations and work for better emission regulations and laws. If you' want employees to be paid and treated better work to raise the minimum wage and improve working conditions.

Such actions have more impact that ESG investing does.
https://www.vox.com/the-goods/22714761/ ... imate-401k
https://www.vox.com/future-perfect/2018 ... sri-report
https://www.youtube.com/watch?v=weVAN2HxXjk
But Vanguard and others now have index fund with 1500+ companies and the ER is 0.12

Though Nvidia is a top 10 and their products are directly involved in the ridiculous consumption of energy causes by crypto. I'm sure one could find fault in a lot of companies there.

Now to my real points Not all directed to you.

1. I agree that working and donating to the causes are extremely important and it is certainly more effective to get laws changed at least in other countries. Plus ESG investing does nothing about privately held companies. Example: We have a paper company owned by Robert Kraft in SC just across the border from Charlotte. They changed from white paper to brown paper when the demand for cardboard skyrocketed. They have been releasing all sorts of chems into the air for the last 12-15 months that are making people sick . They finally received notice from the EPA they have to clean up their act or face fines. Honestly, when a state government wants to protect tax dollars and income for 400 residents at the expense of harming thousands do we really have a chance at passing meaningful laws?

2. If one disagrees with fossil fuel, defense, low wages, poor governance, etc. wouldn't it be hypocritical to receive profits from said companies? I believe so. Have I changed my investments yet? No, but I am seriously considering it. Will I miss returns? Maybe. Heck, I still support fossil fuels because I still have ICE vehicles. So should I not try to recoup that money though investments? Probably.

3. If more investors start dumping traditional large blends for ESGV wouldn't those outflows penalize companies not in ESG? I would think yes if the funds/etfs started taking in decent money. ESGV is at $6.5billion and growing. VSGX is roughly 1/2 that. Small drop in the bucket now, I know.

4. I agree the whole thing has a marketing component too. My company is preaching sustainability and we even have performance bonuses tied to metrics. However, we just started making office workers commute back into the office 60% of the time and none of the CO2 production is going to be factored into the metrics. Plus all of the energy used in the building is not clean either. The average car driving 15k miles is putting ~6 tons of CO2 out or 800 pounds every 1000 miles. That was shocking when I read those numbers. Point is, are these things being considered into the equation when determining a companies ESG score? Doubtful. Should they be counted? Most certainly.

It's a double edged sword.
2. I think a more effective approach would be to change your lifestyle so that you consume less. The market reacts to consumer demand more than ESG allocation. If consumers consume less and have a more environmentally responsible lifestyle, the market will respond accordingly.

For instance, I don't have an ESG portfolio but I don't own a car and sell them drive. I walk, bike or take public transit most places. I generally don't consume very much compared to most people. If more people had a similar lifestyle where they consume less, that would have a significantly better effect than ESG allocation.

I have neighbors who are ESG investors, but they have two cars and drive much more than I do. Since they consume fossil fuels, it is hypocritical for them not to invest in fossil fuel companies.

3. No, watch the Felix vid. It might have some beneficial effects, but mostly what it does is lower the expected return of ESG companies compared to the preference free market. Again the Felix video explains this better than I can.

So overall ESG allocation doesn't seem to have as much benefit as investors who advocate it might think. It's probably better than nothing, but a more effective approach would be to donate and work for issues that are important to you.
Good points.

2. I am changing jobs next month so I can be fully remote next month. Worklife balance and the environmental impact was a driving factor. I get the consume less part too and have started down that path too.

3. I get what he is saying and agree for now. Maybe I am a dreamer!
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Re: ESG Thread

Post by JackoC »

Apathizer wrote: Wed Jan 26, 2022 6:58 pm
2. I think a more effective approach would be to change your lifestyle so that you consume less. The market reacts to consumer demand more than ESG allocation. If consumers consume less and have a more environmentally responsible lifestyle, the market will respond accordingly.

For instance, I don't have an ESG portfolio but I don't own a car and seldom drive. I walk, bike or take public transit most places. I generally don't consume very much compared to most people. If more people had a similar lifestyle where they consume less, that would have a significantly better effect than ESG allocation.

I have neighbors who are ESG investors, but they have two cars and drive much more than I do. Since they consume fossil fuels, it is hypocritical for them not to invest in fossil fuel companies.

3. No, watch the Felix vid. It might have some beneficial effects, but mostly what it does is lower the expected return of ESG companies compared to the preference free market. Again the Felix video explains this better than I can.

So overall ESG allocation doesn't seem to have as much benefit as investors who advocate it might think. It's probably better than nothing, but a more effective approach would be to donate and work for issues that are important to you.
2. There's micro and macro. On a micro level I agree with that, consuming less of the same thing is transparent. Drive the same car fewer miles, burn fewer gallons, simple. Consuming differently can sometimes be murkier. I don't want to go off track on a debate of particular green solutions which is why I'm not being specific but some of them feature significant issues of more environmental impact upfront hopefully more than offset by less over time, and/or exporting dirty processes to other countries rather than eliminating them. Also there's never just one issue, if for example the supply chain for a green technology is dominated by a basically hostile country and the traditional technology isn't, that has to be somehow factored in. But ESG investing is even less transparent than that. What the standards are, and more fundamentally whether the basic model stands up to the real world. The latest in Mackintosh's series of columns in WSJ (day after the one I last mentioned, 1/26's) was about scant evidence that ESG raises/lowers the cost of capital enough to make much difference between less and more ESG-worthy investments by companies. And this is besides the basic contradiction mentioned earlier of hoping for higher investor returns when the actual mechanism of how it's supposed to work is affording greener projects *cheaper* capital (the opposite of higher returns for investors).

But then there's macro. It's important to us how we live our individual lives. But ultimately there's a macro problem which will either be solved or not. I see no real chance of a great reduction in absolute consumption/emissions, by the whole world, achieved by individuals voluntarily consuming less. That's just not how people work IME. Although I doubt just as much or more that ESG investing would have a big part in achieving a similar *drastic* reduction in absolute terms, whole world.

3. And the problem ESG investing has that individual self-denial does not is again lack of transparency and in some cases just outright misunderstandings of how the capital markets and companies work, sometimes I think sold by people who know better to people who don't. I'm therefore not willing to say it's better than nothing. Today's world has enough quasi-fantasy narratives that people push for their own reasons and ultimately just add to the cascading collapse in trust. Whereas simply voluntarily consuming less oneself is IMO literally better than nothing (for the specific goal of reducing consumption, though I'm not telling anyone else to do it or even claiming I do it to somebody else's 'acceptable' degree), even though it has no chance IMO of solving the problem on a macro level.
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Re: ESG Thread

Post by Flashes1 »

Blackrock's ESG initiatives are having a major impact on the capital markets: they will give better loan pricing to a company if they meet certain criteria involving minority representation on Boards and C-Suite. It's great if that's your thing but what if one day Fink moves on and is replaced by someone who pushes for some other initiative that you don't agree with? And are we getting the best qualified people for their jobs or are they hired to meet Fink's idea of what's diverse. What if you or your kid/grandkids miss opportunities because they don't fit the right demographic? What happens if you fall out of favor with Fink's ratings? Who do you petition if you disagree with his rating? Is there enough subjectiveness to the ratings that they could be skewed to punish certain people/companies that Fink/Blackrock don't personally like? The CEO of company xyz cheated on Fink's girlfriend in grad school, for example. What happens if a CEO is 1/8 minority but looks as white as snow. is that minority enough or do they need to be 100% minority (who gets to define this)?
grog
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Re: ESG Thread

Post by grog »

Flashes1 wrote: Thu Jan 27, 2022 3:46 pm Blackrock's ESG initiatives are having a major impact on the capital markets: they will give better loan pricing to a company if they meet certain criteria involving minority representation on Boards and C-Suite. It's great if that's your thing but what if one day Fink moves on and is replaced by someone who pushes for some other initiative that you don't agree with? And are we getting the best qualified people for their jobs or are they hired to meet Fink's idea of what's diverse. What if you or your kid/grandkids miss opportunities because they don't fit the right demographic? What happens if you fall out of favor with Fink's ratings? Who do you petition if you disagree with his rating? Is there enough subjectiveness to the ratings that they could be skewed to punish certain people/companies that Fink/Blackrock don't personally like? The CEO of company xyz cheated on Fink's girlfriend in grad school, for example. What happens if a CEO is 1/8 minority but looks as white as snow. is that minority enough or do they need to be 100% minority (who gets to define this)?
Right. It's ridiculous. Who is this Fink guy that he should issue such dictates? I have no problem with people having whatever views on environmental issues, etc. But imo these are public policy matters that should be decided with at least SOME degree of public accountability, not by whoever happens to be in charge of what is close to being an investment monopoly.

Here are the ESG "standards." Comply or we will cut you off from the capital markets, remove you from the indexes, delist you from the stock exchange.
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Re: ESG Thread

Post by Tanelorn »

Turns out the major Russian stocks were getting top ESG marks and so were over weighed in ESG themed funds. Oops.

https://aswathdamodaran.blogspot.com/20 ... ne-or.html
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Re: ESG Thread

Post by dual »

Interesting article about a change in the E.S.G. policy of Blackrock

Most of it is behind a pay wall but this is the introduction
BlackRock ditches green activism over Russia energy fears
Fund titan says investing in traditional energy sources is now required to boost security

BlackRock has warned it will vote against most shareholder green activism this year for being too extreme, in a significant u-turn by the world’s biggest money manager. ...
https://www.telegraph.co.uk/business/2 ... gy-fears/
cpumechanic
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Re: ESG Thread

Post by cpumechanic »

It appears that not only Blackrock is involved in the ESG enforcement.

This NYT link mentions Vanguard as well , and I find it disappointing that my SP500 shares are being voted in this manner by Vanguard and others.

https://www.nytimes.com/2021/06/09/busi ... ivist.html

I also searched to find the "impact" of this change on the board of Exxon, and I cannot locate any articles online that share the net results.

What I have been told is that the planned expansion of fossil fuels by Exxon were significantly reduced, and that this reduction in supply has impacted prices.

With record prices today and no end in sight... I hope the previous post is real, and the push to defund energy exploration in a "green push" doesn't send us off a cliff as appears to be the case happening today in Germany.

Virtue signals on climate don't heat anyone's home, or allow a poor person to drive a vehicle to a job, or make truck delivered groceries any cheaper.

If someone knows that the change in the board had no impact on the future plans of Exxon, and the amount of fossil fuels they planned on delivering in the next 5 years please share and correct me.

If not.. I think it is fair to say the ESG investing, proxy share voting, and allowing near monopoly investment companies (Blackrock, Vanguard).. to vote my shares in a manner I disagree with needs to be changed.

This is evil.. and from the article appears to be an intentional strategy being employed to achieve same.

Sorry I don't know a gentler, kinder word to use.

Mod's feel free to delete this post, but I view it as making an investing change request, that is actionable at Vanguard, and not at all political.

IE.....Don't vote my shares unless I approve the vote, (If you cannot reach me, a default of Abstain is fine with me).

CPU
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AerialWombat
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Re: ESG Thread

Post by AerialWombat »

The recent Bogleheads on Investing podcast episode about ESG told me everything I need to know about ESG investing.

In 30 years, we'll all be looking back on ESG investing in the same way we look at ICE cars, the Internet, and indoor plumbing: Just another passing fad. :beer
This post is a work of fiction. Any similarity to real financial advice is purely coincidental.
Valuethinker
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Re: ESG Thread

Post by Valuethinker »

cpumechanic wrote: Sat Jun 18, 2022 1:33 pm


Sorry I don't know a gentler, kinder word to use.

Mod's feel free to delete this post, but I view it as making an investing change request, that is actionable at Vanguard, and not at all political.

IE.....Don't vote my shares unless I approve the vote, (If you cannot reach me, a default of Abstain is fine with me).

CPU

You should choose other providers? Blackrock and Vanguard are not monopolists. Dominant yes. But you can use another fund provider if you wish (it might cost you more but that's your "virtue signal").

Hello. I have deleted the rest of my reply --- took us too far off topic.

The point about being a sovereign consumer is you can choose whose products you consume. You don't have to use Blackrock and Vanguard. Maybe you like the rest of their offer (low cost, choice etc). But none of us gets to choose every aspect of every product or service that we use from a particular company.
Last edited by Valuethinker on Sun Jun 19, 2022 7:37 am, edited 2 times in total.
Valuethinker
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Re: ESG Thread

Post by Valuethinker »

AerialWombat wrote: Sat Jun 18, 2022 2:02 pm The recent Bogleheads on Investing podcast episode about ESG told me everything I need to know about ESG investing.

In 30 years, we'll all be looking back on ESG investing in the same way we look at ICE cars, the Internet, and indoor plumbing: Just another passing fad. :beer
Are you being ironic?

ICE cars were not a passing fad. Roughly speaking 120 years of them. It's now clear what will replace them. i.e. that it will be Battery Electric Vehicles and not Hydrogen Fuel Cell vehicles, at least in the first instance. The Korean and Japanese car makers do have some good technologies in the latter, though.

The Internet is not a passing fad. It is after all nearly 65 years old (dating it from 1968).

Indoor plumbing is of course a British thing, reflecting our peculiar obsessions. I don't see it taking off, do you?

ESG Investing? As a separate category it will probably cease to exist because all investing will incorporate a degree of activism on corporate governance.
DVMResident
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Re: ESG Thread

Post by DVMResident »

I’m a director at an SP500 and provide technical expertise for our division for the ESG report committee. These metrics are a joke and the propagation-of-error into the final metric/ranking is just silly.

If you care about a cause, save the ER fees and denote to your charity of interest.
billaster
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Re: ESG Thread

Post by billaster »

cpumechanic wrote: Sat Jun 18, 2022 1:33 pm With record prices today and no end in sight...
I realize that people have short memories but it was just a decade ago that gasoline prices, adjusted for inflation, were higher than they are today. Somehow we all survived without panicking.
sherwink
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Re: ESG Thread

Post by sherwink »

Warren Buffett has a blunt response to the ESG crowd adherents. They don't like it one bit.
Valuethinker
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Re: ESG Thread

Post by Valuethinker »

DVMResident wrote: Sat Jun 18, 2022 6:24 pm I’m a director at an SP500 and provide technical expertise for our division for the ESG report committee. These metrics are a joke and the propagation-of-error into the final metric/ranking is just silly.

If you care about a cause, save the ER fees and denote to your charity of interest.
I would broadly agree with that.

Costless signals don't signal much. ESG is too much a costless signal - a set of metrics which can be, and are, gamed.

(Part of my masters' dissertation was about ESG in the context of climate change, and whether it worked).

One can make choices in alignment with one's values by what goods & services one buys (assuming one has enough money, and a choice).

One can also make "costly signals" by contributing to charities and lobby groups that support one's views.
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Re: ESG Thread

Post by LadyGeek »

I removed a contentious post regarding ESG vs. climate policy, political policy, shareholder activism. This thread has run its course and is locked. See: Non-actionable (Trolling) Topics
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