Investment funds with environmental, social, and governance (ESG) goals have gained popularity in recent years. These funds aim to invest in companies that have sustainable business practices, ethical values, and a positive impact on society and the environment. However, ESG investing faced some setbacks during the banking crisis in the early 2020s. Despite this setback, ESG investing appears to be back in vogue in 2023.
Craig Coben, a former global head of equity capital markets at Bank of America and now a managing director at Seda Experts, states that ESG investing is gaining momentum as investors seek to align their values with their investment choices. He also notes that more companies are incorporating ESG factors into their business practices, which makes them more attractive to investors.
However, not everyone is familiar with ESG investing. Many U.S. adults have hardly heard of ESG and aren't concerned about the "woke" wars. This lack of knowledge about ESG investing could be a barrier to its widespread adoption.
In Kansas, a proposal designed to thwart investing that considers ESG factors has cleared the state Legislature. The bill is designed to stop pension funds from investing in companies that prioritize social, environmental, and governance factors over financial returns. However, critics argue that the bill is an attempt to limit ESG investing and could harm pension fund returns.
Despite this controversy, two of the five pension funds in the New York City Retirement Systems have implemented plans to achieve net-zero emissions in their investment portfolios by 2040. This move is part of a larger trend towards sustainable investing and reducing carbon emissions.
However, synthetic exchange-traded funds (ETFs) have found themselves at the center of a new controversy surrounding ESG ratings. Some critics argue that synthetic ETFs, which use derivatives to replicate the performance of an underlying index, could distort ESG ratings and mislead investors.
In a related development, lawsuits challenging the Biden administration's new regulation allowing socially conscious retirement investing are being invalidated because they lack standing. The new regulation allows retirement investors to consider social, environmental, and governance factors in their investment choices.
Finally, the Teck-Glencore clash represents a contrast in strategies for confronting the energy transition. Teck Resources, a Canadian mining company, has committed to building renewable energy projects to reduce its carbon footprint. In contrast, Glencore, a Swiss mining company, has refused to set targets for reducing its carbon emissions.
In conclusion, ESG investing is becoming more popular as investors seek to align their values with their investment choices. However, there are still barriers to its widespread adoption, including a lack of knowledge about ESG investing and controversies surrounding its use in investment funds. Despite these challenges, ESG investing is likely to continue to gain momentum as investors seek to build sustainable portfolios.
