ThinkTWENTY20

A Bloomberg article posted March 6, 2022 says that an investing movement that promotes itself as a protector of people and the planet has somehow found itself providing capital to the autocratic regime behind Europe’s worst military conflict since World War II.

Written by Saijel Kishan, Alastair Marsh and Frances Schwartzkopff, the article notes that “Russia’s invasion of Ukraine is rapidly laying bare unexpected exposure in much of the ESG universe. Industry researchers at Morningstar Inc. estimate that 14% of sustainable funds globally held Russian assets right before the war. That’s as sustainable investing morphs into a $40 trillion industry embraced by the financial behemoths of Wall Street, where funds that track benchmark indexes are ubiquitous.”

“Ukraine is one of the most important ESG issues we’ve ever had,” said Philippe Zaouati, chief executive of Mirova, the $30 billion sustainable-investing unit affiliated with Natixis Investment Managers. “It’s a vital issue for energy and human rights, and questions whether we still want to live in a democracy or not.”

But those representing the more mainstream side of ESG investing argue the term is widely misunderstood. It is, in fact, just a screening tool to protect investments from environmental, social and governance risks, according to some of the biggest firms working with and analyzing ESG data. “There are still people who inappropriately conflate sustainability and ethics,” said Hortense Bioy, Morningstar’s global head of sustainability research. “Sustainable and ESG funds aren’t the same as ethical funds.”

For that reason, say the authors, ESG funds can buy everything from makers of conventional weapons to producers of fossil fuels. The world’s biggest ESG-focused exchange-traded fund — BlackRock Inc.’s $23.7 billion iShares ESG Aware MSCI USA — holds shares of companies ranging from Raytheon Technologies Corp. to Exxon Mobil Corp.

Bioy said ESG portfolio managers, “just like any other managers holding Russian assets or not, will be evaluating the situation and trying to understand the broader implications of the conflict and impact on their portfolios.” The war “has broader implications for ESG investors than just ethical ones,” she said.

Rachel Robasciotti, founder of Adasina Social Capital in San Francisco, which runs an $89 million ETF that focuses on social justice issues, adds that, “unless a business is clearly an instrument of a despotic regime, it’s important to differentiate between companies and the countries in which they operate.”

For much more, see ESG Finds Itself at Crossroads After Investing in Putin’s Russia (yahoo.com).