The Best And Worst Offenders Of Sustainable Investing

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A recent financial good-news story has been the growth of environmental, social and governance (ESG) investing among corporates and wealthy individuals. Now, however, there are signs of that growth slowing, led by the West.

In a new survey, 65% of U.S. investors adopted ESG considerations when managing their money, compared with 94% of those in Europe, 89% in Canada and 72% in Asia.

While in the past three years the amount of money invested in ESG has boomed, in the U.S. it has remained static, says RBC Global Asset Management, which conducted the survey.

In total, $11.9 trillion was invested sustainably in the U.S. versus $14 trillion in Europe according to a Global Sustainable Investment Alliance report in 2018.

With the largest money markets in the world, the U.S. is key to ESG making a difference to the world. News that U.S. investors have got cold feet presents a major step back in the sustainable investing movement.

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ESG investing usually means “screening-out” or “divesting” stocks and shares that do not conform to broad environmental, social and governance criteria. These mostly include arms, mining and oil firms, but any company that fails these tests can be excluded.

Included in ESG funds you will normally see blue-chip tech stocks such as Apple AAPL and Facebook, consumer goods giants such as Nestle and Unilever and a handful of healthcare firms. Money managers that actively scout out “good” companies will buy into renewable energy firms and certain areas of tech such as agritech, biotech or greentech.

But wealthy and finance people in the U.S. believe ESG investing isn’t up to scratch. Just a quarter agreed that “ESG portfolios will outperform non-ESG portfolios” in RBC’s study, compared with over half of those polled in the rest of the world.

Wall Street clearly fears that sustainable investing will not deliver the returns. It pays, therefore, to lump in oil firms, mining stocks, and other non-ESG investment into a portfolio. The rest of the world disagrees.

The U.S. And European (Un)Sustainable Stand-off

There is mounting evidence against such suspicion. Morningstar recently polled 745 Europe-based sustainable funds and found the majority had done better than non-ESG ones over three, five and 10 year time periods.

Europeans have led the rallying cry to sustainable stocks. Nine-in-ten millionaires polled by Barclays Private Bank, most of them in Europe, said climate change influences their investment choices.

Not all U.S. firms are against ESG investing, however. America’s biggest bank, JPMorgan JPM Chase, recently said it would set emissions targets for its financing portfolio by 2030 after protests at the bank earlier this year.

Several prominent billionaires, including Larry Fink, CEO of Blackrock, Stephen Schwarzman of Blackstone BX and Ken Griffin of Citidel have outlined plans to make their investments sustainable.

But while billionaires and banks might attempt to cajole the rest of the U.S. towards sustainability they are often met with non-believers.

Observers are bewildered. RBC says it is “somewhat puzzling” but needs “continued monitoring.” Others are wondering whether the non-ESG investors have spotted something that the rest of the world has missed.