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  • Elizabeth Taylor

The War on ESG

This month, we're talking about ESG (environmental, social, and governance) investing. As you all know, the environment is very important to us here at Ella Financial Advising. Many of our clients have invested in protecting and nourishing our environment. Now, we want to discuss the war on ESG raging through employers everywhere.

ESG investing is a set of standards investors use to screen potential companies for investment (Investopedia 2023). Investors review a company’s environmental safeguards, relationships within and outside the company, and company leadership. What many people don't know is that ESG-compliance, in and of itself, does NOT imply strong environmental or social impact on society.

According to Dr. James Gifford, Head of Sustainable and Impact Investing Advisory for Credit Suisse and Executive Director of the UN Principles for Responsible Investment, ESG standards were basically invented for pension funds and other institutional investors, for whom it was previously considered that any values-aligned investing would be a violation of strict fiduciary standards. The fiduciary standards meant that the portfolios had to be conservative and had to put growth first, not ethics. ESG was the answer to that.

ESG is actually not impact first, but fiduciary standards first. The idea is that looking at the environmental, social, and governance practices of a company is actually a good long-term predictor of a company's success.

If a company has horrendous social or environmental practices, it can reasonably be seen as a liability for investors. In other words, it's a way to evaluate companies from an ethical standpoint, and it's geared toward financially conservative, growth-oriented portfolios.

This has a twofold benefit: along with allowing investors to invest within their values, ESG investing practices encourage more companies to follow ESG-boosting practices.

However, while many major companies claim to be following ESG practices, many actually do not implement these ideals in their companies. According to CNN’s article on ESG and why it’s failing today, conservative backlash and an increased focus on the bottom line, rather than actually helping the environment, have made terms such as “ESG” and “sustainable” almost meaningless—a term called “greenwashing.” Companies tout ESG checklists without making any meaningful changes, which has allowed gas and tobacco companies to sneak onto ESG investment lists.

Investing with the intention of maximum environmental and social impact is a different strategy, though it does often overlap. The fact that ESG is often misunderstood for impact investing contributes to accusations of greenwashing.

FOX Business published an article last October detailing a Republican-led investigation against U.S. banks involved in pushing the U.N.’s ESG policies. These civil investigators argued that ESG policies are “killing” American companies. In fact, these policies are meant to save our companies. Without environmental sanctions, we will not have resources with which to create companies. We may not even have a planet to live on in the not-so-distant future if such anti-human rights practices continue to push out programs like ESG.

Other countries are changing over to ESG policies without nearly as much struggle as America. Articles on the website tout accomplishments in Germany, which has boosted their Climate and Transformation Fund to more than €200 billion; India, where Coca-Cola India and the ICC are introducing recycled flags for the Cricket World Cup 2023; Colombia, where foundations are working to narrow the gender gap; and hundreds more. Morningstar UK reports that the Netherlands are leading the pack as the most sustainable stock market, with Hong Kong as the most sustainable non-European stock market. If other countries can adopt sustainability so easily, why is ESG such a fight for us?

Thankfully, things are slowly beginning to look up. ESG News reports that companies like bp, DHL, Volvo, and Nestle are raising their companies’ sustainability standards. Nestle currently holds the top spot in the 2023 Coffee Brew Index for coffee sustainability, a feat for the oft-slandered megacorporation. DHL is working to transparently report SAF emission reductions. Volvo is launching a new network of public fast chargers for electric trucks. And bp’s Archaea Energy is bringing about a renewable natural gas plant.

Even Apple, electronics giant of the world, has a lofty goal: become 100% carbon-neutral by 2030. According to their Newsroom, Apple is striving to use only suppliers who use 100% clean energy. The company and their suppliers are working to bring online more than 9 gigawatts of clean power globally, which would avoid over 18 million metric tons of CO2 annually. They strive to use recycled or recyclable products when possible and recycle their own electronic scrap. New products are being shipped with as little airplane use as possible. Apple is also partnering with groups that fund clean energy, forestry, and economic equality.

If all companies were so willing to neutralize their carbon output and follow ESG standards, we would have a much happier and healthier planet. And we would be able to, slowly, work to heal our Earth. Because there is no Planet B.

ESG policies can help to slow and even reverse the destruction we have created. And we here at Ella Financial Advising strongly support ESG-based investing. Contact us for more information on how we can help you find your perfect investment strategy today.

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