Individuals and large institutions alike are allocating more of their dollars to investment strategies that meet some level of environmental, social, and governance criteria. This is commonly referred to as responsible, sustainable, or green investing.
Referenced in this video:
– 2018 GLOBAL SUSTAINABLE INVESTMENT REVIEW
– Sustainability as BlackRock’s New Standard for Investing
– The Contributions of Betas versus Characteristics to the ESG Premium
– Disagreement, Tastes, and Asset Prices
– A Sustainable Capital Asset Pricing Model (S-CAPM): Evidence from Green Investing and Sin Stock Exclusion
– Sustainable Investing in Equilibrium
– Aggregate Confusion: The Divergence of ESG Ratings
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Here is the blog post accompanying this video: https://www.pwlcapital.com/sustainable-investing-how-will-it-impact-your-returns/
If you would like more information on this topic, it has been discussed numerous time on the Rational Reminder Podcast. Episode 63 features a Canadian economist, Tim Nash, who specializes in sustainable investing. Episode 82 is similar to this video. Episode 84 has follow up commentary from Tim Nash regarding Episode 82. Episode 100 features Ken French who gives his take on sustainable investing. Tim Nash offers commentary on Ken French's point of view in Episode 115.
https://rationalreminder.ca/podcast/63
https://rationalreminder.ca/podcast/82 starting at 12:00
https://rationalreminder.ca/podcast/84 starting at 53:10
https://rationalreminder.ca/podcast/100 starting at 45:52
https://rationalreminder.ca/podcast/115 starting at 1:03:39
Just what I was looking for, sign me up for negative ESG
Hi Ben, how can ESG index funds have a positive social impact when they have little effect on the prices of the underlying stocks? This is based on the idea that stock prices are set by volume of trading, which is comparatively low for index funds (from your index fund bubble video)
You're confusing Sustainable Investing with Ethical Investing which have two different processes. SI considers the financial and investment implications of ESG factors while keeping risk/return in mind. Ethical investing is more focused on impact from investments (and typically apply screens which can limit the investable universe) so perhaps there is a return penalty there. You can compare the MSCI ESG Leaders index to its traditional MSCI ACWI- the performance has been relatively the same so I disagree with your claim that there is a performance penalty with SI. SI takes a broader view on risk and identifying opportunities that may not be captured by financial statements. Source: CFA Institute
Interesting arguments and study results.
I was wondering how the recent outperformance of the MSCI World SRI against the MSCI World, even after cost, could fit into that argumentation?
Also, my personal hypothesis is that we will require more "E" focussed industries, especially in the energy sector. Those will inevitably experience high growth and potentially outperform the market, due to the shift in focus. How would that logic agree or disagree with the arguments you presented?
How come I've read so many different articles which suggest completely different conclusions? One of the reasons toted for SRI's actually out-performing traditional portfolios is because the stocks are less likely to tank due to scandals', etc. The growth becomes much steadier and less volatile because it's not doing anything that would cause investors to pull out their stocks rapidly… I'm not saying I have the answer just read some pretty different findings in a variety of different places… Also, isn't SRI an attempt to maximize capital gains like a traditional portfolio just in a more ethical way versus impact investing which seeks to bump the market while anticipating lower returns as a result?
A comparison between SWDA and SUSW contradicts what you said.
Very useful! This is helping me a lot to come up with ideas for my MSc thesis 😀
"Probably going to cost you." Maybe, in dollar returns. But there are no dollar returns at all in a collapsed climate.
Great explanation. The video hints to this but if an investor were to exclude all companies which do things they deem morally wrong, they would essentially be unable to invest in ANY large company.
Carbon emissions, land clearing, unethical labour practices, tax evasion, pollution etc…
Pretty much every listing on the S&P 500 is guilty of at least one of these.
My opinion is that business regulation is the responsibility of governments and international organisations, not individual consumers and investors.
Are the lower returns driven by poor performance of the portfolio or by the typically higher fees? Some more recent ones seem to have quite reasonable fees, e.g. XVV fees are just 0.08%, which is actually lower than SPY (which is at 0.09%). Of course XVV didn't exist until a few months after you made this video though. While getting alignment with more fine grained values is pretty much impossible… that's true of all ETFs and mutual funds, not just ESG ones… and at least the ESG ones get part of the way there for me.
ESG seems a lot like active management with a much smaller pool of stocks than dividend stocks.
– Sounds like a mutual fund investing in dividend stocks essentially.
Good cause, but doesn't sound like a sound investment (with returns in mind).
I'm sorry but the MSCI Canada IMI Extended ESG Focus Index is a joke. Civilian firearms are a larger problem than tar sands? And so much so, that tar sands is one of the largest holding?
ESG is corporatized Marxism and the reason why companies like Gillette have been scolding you for your masculinity instead of just promoting how good their fucking razors are. It is the precipitating mechanism for woke capital.
I remember reading some prospectuses about ESG and failing to find their criteria.
Very interesting and informative video! However, I think this is rapidly changing. We wrote a paper analyzing a 150 stock portfolio with equally-weighted risk contribution metrics and found, that a -25% carbon emission reduction, using the screening approach had lower returns, but a much higher Sharpe ratio. I think this because of the growing premium on Brown stocks (Brown et al. 2021) and more stable policy of ESG conscious firms. So for a stable, long-term portfolio this might be a good strategy.
Best analysis seen so far. Something Blackrock never highlights.
Ignore it. Short high esg stocks.
ESG is part of a package, including restrictive financing for a low or no rating. The higher costs associated with a higher ESG rating will be pased on to consumers making our lives more costly.
Good vidio 🥰🥰🥰
bullshit ask the dutch farmers and sri lanka about esg elites slimey grift
let us check larry fink's carbon footprint what a scam
the emperor's new clothes larry fink what a bullshitter
This video was so informative and depressing
I'm just gonna buy and Bitcoins then😭😅
bullshiiiiiiiiiiiiiiit
Could it be that MSCI USA SRI better returns than plain MSCI USA is because the 150-ish companies selected from the 600+ of the broader index have better quality?
I have taken a good percentage of my funds and changed them to anti-esg funds. It seems idiotic that one is gonna invest hard earned money and BLACROCK is gonna dictate me how to invest my money when they owe fiduciary duty to each and every one of us. Furthermore they are using this ridiculous excuse called climate change to impose on companies that they invest on when climate change is just fake news, even Joe Biden said there was not such thing as climate change.
Another helpful indicator when you are researching stocks to invest in.
Lower returns over 5-years or 50-years?
ESG is a form of canceling based on regulated criteria that could very well be the wrong approach to complicated problems. ESG wouldn't survive if we were objective at looking at problems and talked over them and recognized people have different solutions. ESG exists when you have a dominant culture that thinks it's their way or the highway.
I don't always invest, but when I do I make sure the leadership's genitalia and skin color are primary factors.
ESG = The Gay for pay score lol 😆 😂 🤣 😅
Fast forward to today….BlackRock has dumped just about all ESG funds from its products do to it’s foul smell, irrelevancy, & money lost….ESG’s are absolute garbage that even the homeless won’t pick through.
BLACKMAIL.
Hey ben may i consult with you once i build up some sort of port? I’d be happy to give you a cut of my port 🙂
Could that not mean a proper way to actually condone stock picking then is if you’re a broad market index investor you can slightly tilt your portfolio picking a few stocks on companies that do promote your values if you understand the risk and keep it to a low percentage of your portfolio?
Lower returns in order to keep a planet hospitable to life, yeah that's important enough to invest in ESG companies. High return isn't worth diddley squat if the only habitable planet in this solar system becomes Venus-like. Duh!
This fact based, nuanced discussion of ESG investing is so much better than most of the vids I've watched on this subject. In many of those, the comments about ESG state reductively that ESG is a scam, without really getting into the nuts and bolts that support that assertion.
I've been interested in investing in ESG for years, but instead have been doing my own stock picking. And that row has been a tough one to hoe. My success has yielded me income, but it's also put me into some difficult positions. Right now, my wind and solar stocks are in the tank, and I don't know how long before they bounce back. Some may not.
I know I"m missing out on profits by not investing in an S&P 500 index fund, or other mutual funds that invest in the broader market or in sectors. But I refuse to follow the crowd based on what I know is becoming of the world relative to ecosystems and climate. I cannot and will not give in to investing with the herd, while sticking my head in the sand.
Great stuff Ben. I've read about this on a blog before watching your video, and can say that I feel I'm much more well informed now, considering the two sources. Keep up the good work!.
In other words, capitalism has no solution for a sustainable future.
It will always be more profitable to invest in exploitative practices and sustainable alternatives are always at a disadvantage.
The free market controls only one thing, the market…
So good, Ben.