S&P 500 ESG (Environmental, Social, and Governance) Index

Things need 'splaining to obtuse Elon apparently, he's having a hard time right now. If he had any valid criticisms about the ESG scoring process he should be specific, but he is just whining and ranting as usual. You'd think Elon would be bright enough to figure out how to stay on the index. Which is it, does he care about the index or not, either way he needs to shut up unless he has something valid to say. He's just trolling for extremist support, not good for business.

 

juan valdez...

 

When I was a tadpole, there was one (1) "ESG" mutual fund (the acronym "ESG" wasn't a thing yet) publicly available in the US. It was started by two mainline Protestant ministers and a finance guy they knew, and they chose criteria for investments they'd be comfortable with for church funds. So they screened out companies dealing in booze, tobacco, gambling, and weapons, and they gave a positive weight to "companies with fair employment and pollution control practices" and those involved in "life supportive goods and services".

Today there are 584 such funds in the US (as of December last year) and 5,932 of 'em globally (source). The one that started it all is still around, having grown itself into a family of eleven funds with slightly different investment objectives and criteria, and none of those eleven are even among today's top ten such funds. (Looks like Parnassus holds 3 of the top 10 slots and TIAA-CREF holds a couple, source).

There isn't any single outfit decreeing what an ESG fund does or doesn't invest in. ESG as a category refers to funds that pay attention to something, in addition to pure financial return, where the something will be some combination of environmental, social, or workplace governance practices. If you're an investor and there's something besides pure financial return that matters to you, probably among the 5,932 ESG funds you could choose from, you may find some using criteria that fit with what matters to you.

So, as interesting as it may be that the S&P guys have decided they should also publish an "ESG index", it would be fair to take their list as about 1/5933rd of a proclamation of what ESG means. The news reports on their Tesla decision suggest that Tesla was doing just fine on the E criteria, but its corporate Governance practices did not make the cut (for that particular ESG list). I'm recovering from my shock.

It's been kind of a long-running question (all the way back to when there was only one ESG fund) whether looking at any criteria other than financial return necessarily harms a fund's pure financial performance, or helps it, or comes out more or less a wash. ESG fund managers generally believe that a focus on companies with sane governance practices, that are paying attention to their environmental and social surroundings, will have a long-term upside.

My own experience (I guess I've got enough to call it long-term by now) has been more or less "wash". What I've invested in ESG funds hasn't suffered, compared to purely finance-driven funds, but hasn't significantly outperformed them either. And of course the details are a little different for each different ESG fund.

Of course, there are (of course there would be) anti-ESG backlash funds available for your investing pleasure, if that floats your boat.

My dad once brought my attention to a guy who'd written a climate-denial article for Newsmax, and I looked around a little to see what else this guy did, and he also ran a mutual fund that (in typical backlash fashion) would watch various ESG funds to see what they didn't invest in, then say "nyeah!" and invest in those stocks.

Whatever the final verdict turns out to be on whether ESG criteria confer a performance advantage, it seems that using "nyeah!" as a criterion does not. The guy folded that fund after a while, once it had transferred a good deal of wealth out of its investors' pockets.

One of his next things after that was a mutual fund based on the premise that stocks always decline when Congress is in session. It would cash out all its holdings every time Congress convened, and repurchase them at every adjournment. Naturally, it was a roaring success at generating massive brokerage commissions for his trading partners.

 

I guess cutting down all of the non-indigenous trees for the Germany Factory building & planting a whole lot more than they removed somewhere else, & in a more appropriate location doesn't count. c'est la vie
.

 

That sounds like it would count in somebody's E column. The news reports suggested Tesla wasn't dinged about the E column.

 

just the fact that they put exxon in negates any environmental definition

 

Still, the E is only one of the E, S, and G.

And there are some Exxon-related news items too. Their shareholders had recently approved a shareholder resolution, and a few board members had been replaced, viewed by ESG investors as positive developments. Some of those investors may be taking into account not just historical behavior but also motion. The 5,900+ ESG funds and indices out there probably don't all agree on how to weight that, but to the S&P index folks, apparently it was worth something.

There are plenty of funds in the ESG universe that also designate themselves fossil-fuel-free. My guess is those will not be holding Exxon for the foreseeable future.

 

maybe they just like profit. exxon closing in on historical high, but geopolitics is a finicky mistress

 

It illustrates that "ESG" isn't any one thing. Of the 5,932 such funds out there, every one of them will have a prospectus that tells you what criteria they care about and how they measure them, and how they weight companies that are strong on some and weak on others. None of them will accept your money until you sign something saying you've read their prospectus (at least in the US, I don't know how the laws work elsewhere), so might as well really read it and not just tick the box. Presumably, if you've found a fund you choose to invest in, it'll be because you've looked at how that fund makes its decisions and figured it's close enough to how you would want them to.

 

Dang, I invested TSLA for profits and growth . . . is there a profits and growth index fund?

Bob Wilson

 

Wouldn't that be the description of, oh, most of the index funds out there?

 

crypdex

 

Their Pinocchio noses makes it hard to believe:


Bob Wilson

 

true ......
but they WERE dinged because the fund figures that since Tesla is occasionally under investigation for car crashes that are (assumed) automatically linked to autopilot - rather than the drivers .... that such bad PR (sometime generated by stock shorter's) is enough to - in part, lock them out of their 'good company' category.
Meanwhile - Exxon, being under investigation for hiding how far back they may have known about climate change? They are in. Maybe the rants musk goes on about woke marxist cancel culture & ditching a political party - has more to do with 'fund exclusion' than the company stock? Naw - it's unlikely politics has anything to do with it

.

 

Umm, whose Pinocchio noses are you talking about here?

ETC began this thread with a news item about one particular index that is marketed by Standard & Poor to people looking for an index that considers ESG factors. S&P, of course, publishes other indices that don't include such factors (including, lest we forget, the one that everybody thinks of when they hear S&P).

So it turned out, while talking about available mutual funds with ESG objectives, there are 584 of those in the US and 5,932 of those globally (sources in #5).

Maybe that sounds like a lot, but not so much when you think of the 7,636 (US, source), or 126,500 (globally, source) mutual funds available for your investing pleasure. It's pretty safe to say that if you're not personally interested in an ESG fund, there is no shortage of other things out there for you to invest in.

 

The question seems to miss the point of there being ESG funds.

 

i dumped exxon, phillip morris, etc. for lower return stocks that were more acceptable to my belief system.
you can't have it both ways.

 

I'm not sure it misses the point, exactly. It's an empirical question. You might feel like bisco about it, and be willing to trade off some amount of financial performance in view of other factors that you value. But you'd probably want to know how much performance you'd be trading away, and you'd probably have a limit. You still do need to eat.

It's also not entirely impossible that the ESG advocates are onto something, and that there can be some long-term upsides to portfolios taking ESG into account, by avoiding companies that are shortsighted about known important risks. If that's so, then possibly it isn't the inevitable sacrifice that bisco portrays. Again, that's an empirical question; we can't answer it from our armchairs, but only by seeing what really happens.

I mentioned in my experience it has seemed pretty much a wash. My ESG investments haven't clearly outperformed my vanilla ones, the way ESG advocates might have expected, but they haven't strikingly underperformed either, the way ESG naysayers might have expected. So, I haven't had to feel like I made some kind of painful trade-off.

To be honest, though, I was watching those details a lot more closely in earlier years. Once I had seen enough to decide they were kind of a wash, I wasn't paying as much attention. Here's a recent article with some encouraging factoids:

The article definitely sounds like it's written by an ESG advocate. Those particular metrics (like "how many funds survive from 10 years ago?") might, for all I know, be painstakingly cherry-picked. But if they're accurate, the picture might be better than bisco thinks.