Updated: Sep 27
There has been a great deal of attention given to MSG (Monosodium Glutamate) and whether it is a harmful food additive. If as much attention was given to ESG we might well be further along in our battle against climate change.
ESG stands for Environmental, Social and Governance which have become “the three central factors in measuring the sustainability and societal impact of an investment in a company or business”. That sounds important, right? The question is, why, and is it important to you personally?
If you are investing in the stock market or have a retirement fund to care for, like I do, you will probably agree with me. It's a world of acronyms and layered subsidiaries. All I know is that ‘someone’ has my money, is making making more money with it and is giving me some back. Beyond that, who is using all this money and for what, I hardly have a clue. Case in point: How can I tell if my money is being used to destroy the environment or to save it? It’s damn near impossible. Enter ESG.
The history of Socially Responsible Investing (SRI) is fascinating. My focus in this article is an element that has evolved from that history known as ESG "which strives to assess the materiality of non-traditional data to determine which companies are best prepared to compete in a world with dwindling natural resources, higher regulatory burdens, a growing human population and climate change".(Bailard Wealth Management) These are the three areas of measurement:
Environmental – Climate Change and sustainability
Social – Diversity, Human Rights, Consumer Protection, Animal Welfare
Governance – Managerial Structure, Employee Relations, Executive Compensation, Employee Compensation
Over the past couple of decades, with a push from Secretary General Kofi Annan of the United Nations, ESG has become a measuring device of choice for investors who want to hook up with sustainable companies. The actual mechanics of this measurement are a bit complex as one might imagine. Even then, ESG is not perfect, but a good place to start. The fact that there are few other ways for individual investors, makes it a great place to start. Coupled with the growing strength of green energy companies and renewable stocks this is becoming a no-brainer. It’s a massive shift of money from environmentally unfriendly stocks to eco-friendly investments.
“Private equity funds are also participating in the trend as institutional investors continue to commit themselves to ESG principles. And with the vast majority of millennials interested in sustainable investing, ESG’s influence on capital access is here to stay. Ignoring ESG-focused capital sources would be unwise and unnecessarily hamper the industry’s recovery.”(Winston and Strawn speaking about the oil industry.)
As climate change evolves into a huge financial risk and existential threat, institutions and individuals are wielding the ESG thing like Joan of Arc’s flaming sword. It has given investors a tool to channel monies to combat the effects of climate change and they are using it. Shareholders are demanding accountability for corporate behavior that threatens a sustainable future. Churches, universities and unions are diverting their massive funds to more environmentally responsible funds. Assets managers like BlackRock, the largest in the world , is calling loudly for accountability if funds are to maintain their position in BlackRock’s portfolio.
I decided to get in on the battle. I called my financial guy, Bryan Davis of Edward Jones, and asked him what the ESG rating is on my investment funds. He said he would be glad to find out or I could research it myself. I say, “I’ll do it!” He tells me how and off I go.
Bryan is having me use Morningstar.com. I light up the computer and go over the steps I was given. Morningstar is a pretty cool site. Let’s see…. There are letters everywhere. I’ll start out with the EIOI fund and then go to AARE or maybe just go alphabetically… or maybe by size of the fund.... I begin. It took a while to find the right buttons to push and then….
Oh my god! There it is.
OK, let’s see. I lean forward resting my chin on my hands – is that a good or bad rating? Hmmm. It doesn't look that great to me. I check out the other funds. Clearly there is one really bad one. I frown. I know that petroleum is in everything; plastics, foods, clothing, etc., so ESG isn’t an ‘end-all’, but this is a place to start.
I call Bryan back. We talk things over and make a plan. I’m now learning about green stocks and rapidly growing renewable energy funds. I’ll rely on Bryan to find the right asset manager from among the BlackRocks and JP Morgans of the financial world. Those are the guys who create and manage the funds you are invested in. Personally, I don’t think there are many good ones but some are clearly some are better than others. You need to check out how deeply they are enmeshed in unsustainable activity.
I can hardly wait for my next virtual backyard barbecue when I’ll mosey up to someone on the screen next to me and ask; “Hey Pat! How’s that ESG rating on your retirement savings doing?”
But before that, I’m going to throw my weight around. (Let’s be honest here. My retirement “portfolio” of stocks and bonds doesn’t weigh much. Let’s say it’s more like a finger nail clippers than a flaming sword, but I’m wielding it anyway.) I now have a tool that allows me to shift money for the betterment of the environment without having to understand all the acronyms and subsidiaries. I’m going to write the ‘in-bed-with-big-oil’ asset manager I have about their stinking portfolio and tell them why I am dumping them.
My letter may provide some water cooler laughter, but I don’t think they like those kind of letters because it makes them wonder how many nincompoops there are out there like me. They get concerned because if one little old retired guy with a dollar and fifty cents is figuring this out, then it only means trouble down the road.
If we are lucky enough to have some retirement cash, unlike most people of the world, let’s stop being ignorant about who is using our money and stop investing in fossil fuels. We can do that for those who suffer from the climate consequences of our investments. Find out what your ESG ratings are and do something about it. Lobby your employer to do it too.
By the way, for those of you who preferred an article about the “MSG” thing, here’s a link for you.