The hottest new thing for Woke Wall Street is “ESG” investing, where ESG stands for “environment, social, and governance.” In other words, investing in politically correct sectors like “green” energy, media, and so forth, and avoiding investing in tobacco, arms manufacturers, and above all fossil fuel energy companies. ESG has become, Barron’s reports, “one of Wall Streets favorite buzzwords.”
Only the name and acronym are new. Twenty years ago “sustainable” investing was all the rage, but it turns out that the only kind of investing that is truly sustainable is in companies with growing profits. I’ve seen estimates that pension funds lost billions in gains by dumping all of their tobacco stocks (which have continued to climb) starting 25 years ago, and it is telling that Harvard, Yale, and other elite leftist hedge funds that run schools on the side have declined to divest their fossil fuel stockholdings because it would be bad for their returns, and might even breach fiduciary duty.
What does the wider public think of ESG investing? One recent survey found that “about one in four people believes the acronym stands for ‘earnings, stock, growth,'” which is just the right way to think about investing. Barron’s continues:
“Retail investors don’t understand ESG investing—only 9% say that they have ESG-related investments, and the familiarity with the concept is not as high or as broad as some of the coverage on the topic of ESG investing might suggest,” says Gerri Walsh, president of the FINRA Investor Education Foundation, which conducted the retail investor survey with NORC of the University of Chicago.
Only 24% of the 1,228 investors surveyed could correctly define ESG investing, and just 21% knew what the letters in ESG stood for. Walsh says the finding is “both surprising and concerning.”
But it gets worse. ESG investments aren’t doing all that well. A separate Barron’s report notes:
By eschewing traditional energy stocks and defense shares, which are having a banner year, and embracing low-carbon-footprint technology stocks, which aren’t, many ESG funds lost money in the first quarter, and underperformed their benchmarks.
One way around this problem is to redefine what qualifies as an ESG investment. Britain has decided that natural gas companies are just dandy ESG investments, while Sweden has decided to admit arms manufacturers into the ESG club, on the sensible ground that if you aren’t able to defend yourself against aggressors like Russia, you pretty much fail the most basic test of “sustainability.”