Photography: Francis Dean/Corbis News
I was quoted today in a great article in Bloomberg discussing the growth of ESG investing in addition to the risks of greenwashing as the big fund management firms join the fray – especially Blackrock, the world’s largest asset manager with over $8 trillion managed. I’d like to expand on what I said in the article, providing specific examples of greenwashing as well as our solution to the issue.
First of all, Larry Fink, Blackrock’s CEO, writes a great letter. He really does. He discusses the existential crisis many companies will be facing because of climate change and the need to push companies to be more aware of their actions and contributions to the crisis. On the surface, this is great – but rhetoric only goes so far. You have to actually implement this philosophy, not just talk about it.
Blackrock’s iShares ESG Aware MSCI USA ETF (ESGU) has garnered over $13 billion in assets since its launch late in 2016. On the surface, it’s great that we’ve seen this kind of asset flow into a sustainable fund. The real question is, however: is this really a sustainable fund? Let’s take a detailed look under the hood and find out the answer.
According to Morningstar Direct, ESGU has 2.15% allocation to the energy sector (fossil fuels) as opposed to its benchmark with a 2.41%, so it’s doing a little better, right? Well, as Cradle to Cradle author William McDonough says, “being less bad is still bad.” This fund has holdings in ExxonMobil which begs the question – is anybody actually looking at the holdings – both on the fund management side and the buying side. There’s also Amazon polluter Chevron, oil service companies, Schlumberger and Baker Hughes, as well as oil companies, ConocoPhilips, Hess, Philips 66, Marathon Petroleum, Valero Energy, natural gas company Cheniere Energy, and a number of marginal utilities.
Try to find a solar, wind or other alternative energy company in the portfolio and all you’ll find is market darling, Tesla. First Solar? Not there. SunPower? Nope. Basically what you’re getting with ESGU is a less-bad portfolio – and even that’s questionable.
Let’s look and see what else is in the portfolio that we would never allow into an Earth Equity portfolio:
- Facebook – can you think of a less socially responsible company right now?
- Pepsi and Coca Cola – I didn’t realize that sugary drinks had a socially redeeming quality.
- 3M and DuPont – Google these companies and check out how environmentally responsible they are relative to their PFAS contamination.
- Raytheon – one of the world’s largest defense contractors.
- McDonald’s – not sure where the redeeming ESG value is here.
- Anthem and United Health – been denied for a health insurance claim lately?
- Newmont Mining – human rights and environmental offender.
- Archer Daniels Midland (ADM) – Big Ag, anyone?
- Keurig Dr. Pepper – How many landfills are full of Keurig pods?
- MGM Resorts and Las Vegas Sands – Gambling companies in an ESG portfolio?
Ok, there are many SRI managers out there who will intentionally own marginal, or even serial offenders like Exxon or Chevron to vote their proxies and push the companies to be better. So, is Blackrock voting their proxies to make companies better? No. According to a recent Morningstar research report, ESGU had 35 opportunities to vote on ESG resolutions in 2020. They only voted in favor 9% of the time.
Remember that great letter that the CEO sent out about how responsible Blackrock is? It was greenwashing.
Now to be fair, Vanguard also has its FTSE Social Index (a mutual fund instead of an ETF) with nearly $11 billion in assets. This fund is just as bad when it comes to holdings, but their CEO isn’t going out and writing letters about how responsible they are.
This is where Blackrock’s rhetoric is so insidious – the vast majority of both retail investors and financial advisors aren’t going to conduct the in-depth due diligence that we do at Earth Equity. It’s easy to simply buy an iShares ETF and forget about it. They’re probably not going to dig deep to find out that they own ExxonMobil – the company that intentionally misled the public and investors about climate change.
Unfortunately, there’s not much we can do about this since there’s no governing body that regulates how companies label ESG/SRI/Sustainable investing. Larry Fink will continue to write his annual letter and simply because of Blackrock’s size, the assets will continue to flow to them. What you can do is educate yourself on what you actually own – look under the hood and see beyond the rhetoric. And if you don’t want to do it yourself, seek out investment advisors who specialize in sustainable investing and put the hard work of due diligence into their portfolios. You’ll be glad you did and the world will as well.