So what is meant by ESG investing? Well, as a matter\nof fact, that\u2019s a really good question.<\/p>\n\n\n\n
The short answer is that ESG stands for environmental,\nsocial, and governance. It is laudable to invest in a way that is intended to encourage\npositive social change.<\/p>\n\n\n\n
But, like many things in life, ESG investing isn\u2019t\nalways quite so simple.<\/p>\n\n\n\n
What got me thinking about this topic was when I was\nat a recent investment conference and we took a look at a \u201cLow Carbon\u201d exchange\ntraded fund. Indeed, that was the name of it. \u201cLow Carbon\u201d.<\/p>\n\n\n\n
As it turns out, one of the investments inside the\n\u201clow carbon\u201d exchange traded fund was Shell, an oil and gas company. <\/p>\n\n\n\n
Believe it or not, including Shell in a low carbon ETF\nis a very defendable decision. Shell does a lot of work in natural gas, and\nnatural gas is a green decision when you compare it to alternatives, especially\ncoal.<\/p>\n\n\n\n
Still, I fully expect that a lot of people that would\nbe attracted to a \u201clow carbon\u201d ETF would be surprised and disappointed to find\nthat they actually owned Shell stock. And twelve other oil and gas companies.\nAnd, for what it is worth, a couple of cigarette manufactures and a big\nagricultural chemical company.<\/p>\n\n\n\n
This low carbon ETF is not alone. Separate from this\nthere is a \u201csocial index\u201d mutual fund that has a 25% weighting in oil and gas.\nThat\u2019s an overweight position in one sector. For many investors, this will not\nbe a problem. But for someone looking for a fossil fuel-free investment, this\nis not it.<\/p>\n\n\n\n
ESG investing is a newer term, but it is not a new\nconcept. Previously these types of products were more commonly referred to as\n\u201csocially responsible\u201d investing. While they have been around for decades in\none form or another, they haven\u2019t really gained the traction that some people\nfeel they should have.<\/p>\n\n\n\n
Historically the biggest concern has been product\nperformance. While supporters will claim that ESG investing should not lag other\ninvestment options, there have been performance issues with at least some ESG\nproducts. If nothing else at least the perception of lagging performance is\nprobably the main reason why ESG investing has not seen more uptake. It\u2019s\nprobably fair to say the jury is still out on whether ESG investing does not\nhave to come at the sacrifice of performance. <\/p>\n\n\n\n
But performance is not the only question mark. When\nyou have oil and gas companies in \u201clow carbon\u201d portfolios, how do you even\ndefine ESG? Clearly it takes more than a superficial labelling.<\/p>\n\n\n\n
One of the holdings in an ESG fund that I looked at is\nBerkshire Hathaway. To me, it is totally unsurprising to find Berkshire\nHathaway in an ESG fund. It is a very well-respected firm that has acted\nadmirably.<\/p>\n\n\n\n
Yet I remember that I was at a Berkshire meeting years\nago and there were a handful of protestors that were not in favour of a\nhydroelectric project that a Berkshire subsidiary was associated with. I think\nthe strong consensus was the protest was unfounded, but for those few people I\nwould expect that an investment in Berkshire would not be welcome. Another\nexample was that some people took their ire out on Pampered Chef, another\nBerkshire subsidiary, because of a corporate charitable donation program, even\nthough I think most people wouldn\u2019t have a real big issue with a company that\nsells pots and pans. Berkshire also owns Dairy Queen, and maybe there is\nsomeone out there that would not want to be part of a company that sells\nhamburgers. So while a company like Berkshire Hathaway is widely admired, there\nwill be always be a few people with another perspective.<\/p>\n\n\n\n
When you really dig into an ESG portfolio, the issue\neventually becomes we live in a world where everything is connected to\neverything. So while it is easy enough to\nscreen out an arms manufacturer, do you also screen out the bank that they work\nwith? Even if that same bank also works with other customers that do great things?\nInevitability there will be some subjectivity involved.<\/p>\n\n\n\n
The bottom line is that there are many nuances to ESG\ninvesting. I think a wise approach is to define what it is that the investor is\nlooking for before jumping in. If someone wants a strict adherence to no fossil\nfuels then that \u201clow carbon\u201d ETF that holds oil and gas companies will be\nunacceptable, but it could be perfectly fine for an investor that defines\nmaking a difference in some other way.<\/p>\n\n\n\n
Brad Brain is\na Portfolio Manager with Aligned Capital Partners Incorporated (ACPI). ACPI is\nregulated by the Investment Industry Regulatory Organization of Canada (<\/em>www.iiroc.ca<\/em><\/a>) and a Member of the\nCanadian Investor Protection Fund (<\/em>www.cipf.ca<\/em><\/a>). This publication is for informational purposes\nonly and shall not be construed to constitute any form of investment\nadvice. The views expressed are those of the author and may\nnot necessarily be those of ACPI. <\/em>Content is prepared for\ngeneral<\/em> circulation\nand has been prepared without regard to the individual financial circumstances\nand objectives of persons who receive it.<\/em> <\/p>\n","protected":false},"excerpt":{"rendered":" So what is meant by ESG investing? Well, as a matter of fact, that\u2019s a really good question. The short answer is that ESG stands for environmental, social, and governance. It is laudable to invest in a way that is intended to encourage positive social change. But, like many things in life, ESG investing isn\u2019t […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[14],"tags":[],"class_list":["post-443","post","type-post","status-publish","format-standard","hentry","category-investment-blog"],"_links":{"self":[{"href":"https:\/\/bradbrainfinancial.com\/investments-acpi\/wp-json\/wp\/v2\/posts\/443","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/bradbrainfinancial.com\/investments-acpi\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/bradbrainfinancial.com\/investments-acpi\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/bradbrainfinancial.com\/investments-acpi\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/bradbrainfinancial.com\/investments-acpi\/wp-json\/wp\/v2\/comments?post=443"}],"version-history":[{"count":1,"href":"https:\/\/bradbrainfinancial.com\/investments-acpi\/wp-json\/wp\/v2\/posts\/443\/revisions"}],"predecessor-version":[{"id":444,"href":"https:\/\/bradbrainfinancial.com\/investments-acpi\/wp-json\/wp\/v2\/posts\/443\/revisions\/444"}],"wp:attachment":[{"href":"https:\/\/bradbrainfinancial.com\/investments-acpi\/wp-json\/wp\/v2\/media?parent=443"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/bradbrainfinancial.com\/investments-acpi\/wp-json\/wp\/v2\/categories?post=443"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/bradbrainfinancial.com\/investments-acpi\/wp-json\/wp\/v2\/tags?post=443"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}