The multi-trillion dollar greenwashing industry
Most publications that cover corporate America also rely on advertising from corporate America. While this does not give corporations editorial control, these publications need to ensure that corporations feel comfortable advertising alongside their content. Popular Information, on the other hand, accepts no advertising and is not financially dependent on any corporation. That gives us the freedom to provide you with the unvarnished truth. In the last few years, trillions of dollars have flowed into stock funds that are focused on environmental, social, and governance (ESG) issues. These funds appeal to our better angels, using slick marketing to encourage investment in socially-responsible companies. The individuals and institutions that invest in such funds likely believe their money is supporting companies that are reducing climate emissions, treating their workers well, and keeping excessive pay for executives in check. But, for the most part, that isn't happening. Part of the issue is that there are no standards for ESG funds. Each fund makes its own rules. And the ESG concept lumps together three issues that, individually, encompass a broad array of issues. As a result, the fact that a company's stock is included in an ESG fund could mean virtually anything. To understand the problems with ESG investment vehicles, it's helpful to dive into the most popular one: ESGU, which is managed by BlackRock. McDonald's, for example, is "one of the world’s largest beef purchasers" and "generated more greenhouse gas emissions in 2019 than Portugal or Hungary." And greenhouse gas emissions attributable to McDonald's are steadily increasing, rising 7% over a recent 4-year span. But MSCI upgraded the environmental rating of McDonald's in April 2021. Why? First, MSCI "determined that climate change neither poses a risk nor offers 'opportunities' to the company’s bottom line." In other words, if governments crack down on emissions, McDonald's is not likely to suffer because it does not directly produce the emissions. Rather, the emissions are generated from its supply chain. So MSCI does not consider emissions from McDonald's because it has decided climate change is not a threat to the corporation's profitability. MSCI then credited McDonald's for the "installation of recycling bins at an unspecified number of locations in France and the U.K." This improved MSCI's rating for McDonald's regarding "risks associated with packaging material and waste." Prior to installing the recycling bins, McDonald's faced "potential sanctions or regulations" in those countries. In other words, it's possible to categorize nearly any company as valuing "ESG" issues. That's why "almost 90% of the stocks in the S&P 500 have wound up in ESG funds built with MSCI’s ratings." It is a virtually meaningless designation. Another BlackRock ESG fund, ESG Aware, is very similar to the S&P 500. The only significant difference is that ESG Aware, which has an "environmental" seal of approval, is "more heavily weighted in 12 fossil fuel stocks than the actual S&P 500." The other difference is that BlackRock charges higher fees for ESG Aware than its S&P 500 index fund. Individual investors and others are being deceived. And now the federal government is calling for reform. The SEC's proposed fixThe proposed rule would "require funds that say they consider ESG factors to provide investors with information in the prospectus about what ESG factors they consider, along with the strategies they use." ESG fund also would need to "disclose relevant metrics." For example, funds that say they take climate issues into account "would be required to report the greenhouse gas emission metrics of their portfolios." |
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