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[OP]
Deal Addict
Aug 17, 2008
4294 posts
3435 upvotes

ESG Investing

Could we have a more polarizing thread?

(1) Let's try to keep this civil and try to back up any points of discussion with empirical evidence.

(2) Leave the name calling and personal attacks in the playpen.

(3) Take any political comments to the Off Topic (off-topic-f15/) section.

Background

A friend and former colleague graduated from the Munk School of Global Affairs & Public Policy. For the past few years, he has been talking about aspects of "Environmental, Social, and Governance" (https://www.investopedia.com/terms/e/en ... iteria.asp) and how it would fit into businesses in the future. Mostly the E and G.

Largely, he bored me when talking about this.

A few years ago, one PM needed to invest in a certain utility. After booking the trade, he came back and asked to break the trade because this particular utility didn't meet the clients ESG guidance. The utility had some nuclear exposure. That was my first real life ESG exposure.

Today

The market has changed significantly since then with specific ESG mandates, ETFs etc.

This morning Deutsche Bank (https://www.dbresearch.com) published a research article called "Davos 2020: We need to talk about
(sustainable) growth..." (https://www.dbresearch.com/PROD/RPS_EN- ... 504064.pdf)

Agree or disagree, it seems like they put a great deal of effort into producing this.

Going Forward

I don't have in mind any particular direction for this thread to go, nor do I have any particular point to make. Generally, this is not in my forethought when making investment decisions, although my own sense of right and wrong may sway me.

If the thread dies on the vine or gets downvoted, NP.

The preamble that DB sent out with the link lead me to think of creating this thread. I do not have any affiliation with DB.
59 replies
Deal Guru
Jan 27, 2006
14547 posts
7444 upvotes
Vancouver, BC
Looks like I'll start...

The problem I have with ESG is not in the general concept - ie the idea of basically running a company with 'some' level of 'ethnical/moral' management when it comes to a variety of issues - but exactly how it's defined, who uses those definitions, and who audits those users. After all, if you look at some of the ESGs funds out there, you'll see that one ESG fund might hold X while another completely avoids X... so who is right? Even in your example that you provided for that utility about nuclear power - if you go buy one group who's ESG guidence says nuclear is out, I'm sure that multiples of groups will include nuclear since it doesn't create greenhouse gases (of course, we will ignore the radiation with a half life of millions of years and will kill people in a matter of minutes to hours but that's a different discussion).

In short, how can the 'consumer' trust ESG to be ESG?
Deal Addict
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May 11, 2014
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I also have issues with ethical labels for investments. To me it is rather used as a marketing/ethical/green washing ploy especially as @craftsman has highlighted, questionable or debatable efficacy or policy. What makes one investment right over another? Additionally, if my capital doesn't go there, that makes the price cheaper and eventually someone will put it in especially as there will always be market players looking for profit.

One other counterintuitive thought I had is this. If we don't invest in it, that lowers the price for someone else to invest in it instead. Additionally, to make effective change, wouldn't it be better to be a shareholder and make ethical decisions to bring about changes in a company making unethical choices? For instance, if Amazon shipments of boxes has spiked the amount of pollution and waste in shippIng, instead of not making no investment in it, as a shareholder pushing for policy decisions such as making net zero waste, investIng in offset projects, or using biodegradable and recyclable materials as policy a better way to go about it?
If we have a problem with oil companies as beIng pollutive, wouldnt it be better to Invest in them and then direct them to develop less pollutive means of production?

To me the concept has such little effect. I would rather invest in smaller, local projects to effect change. I'm a shareholder of a wind and solar energy coop. I am funding an installation of solar panels on my parent's roof. Lent out cash via KIVA. Not huge if any returns, probably some losses, but to me that is more effective.
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I know I've brough up these Desjardins Low CO2 ETFs using ESG principles in the past.

low-co2-etf-2261329/

https://www.fondsdesjardins.com/etf/ri- ... co2-index/

At one point Suncor and Enbridge were top holdings. Now it's just Enbridge. Im curious if there waa an attempt at managerial change.
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Deal Guru
Jan 27, 2006
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xgbsSS wrote: One other counterintuitive thought I had is this. If we don't invest in it, that lowers the price for someone else to invest in it instead. Additionally, to make effective change, wouldn't it be better to be a shareholder and make ethical decisions to bring about changes in a company making unethical choices? For instance, if Amazon shipments of boxes has spiked the amount of pollution and waste in shippIng, instead of not making no investment in it, as a shareholder pushing for policy decisions such as making net zero waste, investIng in offset projects, or using biodegradable and recyclable materials as policy a better way to go about it?
If we have a problem with oil companies as beIng pollutive, wouldnt it be better to Invest in them and then direct them to develop less pollutive means of production?
What you are basically saying is reflected in the political debate of engaging countries by working with them rather than ignoring them and hoping that they will go away which is basically what selective investment in ESG seems to propose. There are many schools of thought about that approach and I don't believe anyone has gotten to a meaningful conclusion of which approach if any of them is better than the other.
Deal Guru
Jan 27, 2006
14547 posts
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xgbsSS wrote: I know I've brough up these Desjardins Low CO2 ETFs using ESG principles in the past.

low-co2-etf-2261329/

https://www.fondsdesjardins.com/etf/ri- ... co2-index/

At one point Suncor and Enbridge were top holdings. Now it's just Enbridge. Im curious if there waa an attempt at managerial change.
Even if you disregard the idea of managerial change, what kicked out Suncor but kept Enbridge? After all, both of them deal with fossil fuels which is seen as the 'uninvestable' area. Are they comparing Enbridge with trucking or rail and including Enbridge because pipelines are safer?
Deal Guru
Jan 27, 2006
14547 posts
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An interesting new development today is Blackrock's CEO is changing their stance on ESG - BlackRock vows tougher stance on climate after activist heat. Interesting as Blackrock is the name behind iShares which runs many of the larger passive index ETFs in North America. And as we all know, these ETFs are very popular among certain groups of investors and their big claim to fame is that they are passive - ie no selection of stocks other than they are in the index, no voting or pressuring companies, and no opinions offered those companies. So, how does some firm like Blackrock configure these ETFs in order to conform with their statements?
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Sep 8, 2007
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When you succumb to activists they are never happy and continue down a path of more insane and crazy. Which is where ESG investing ultimately ends up.

For example....Why not stop investing in companies that use China to manufacture? Based on mainstream news today. Doing business with Iran is good, but USA is bad..Trump! So wanna go that route? Brexit evil? So UK out, Europe in?

Which god do you bow to based on how crazy you want to pander to activists?
"It is in times of great fear or greed that the most opportunity exists."
[OP]
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Aug 17, 2008
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FYI - Green Bond Principles via the International Capital Market Association, (https://www.icmagroup.org/green-social- ... iples-gbp/)

Green Bond Definition
Green Bonds are any type of bond instrument where the proceeds will be exclusively applied to finance or re-finance, in part or in full, new and/or existing eligible Green Projects (see section 1 Use of Proceeds) and which are aligned with the four core components of the GBP.
Sr. Member
Jun 28, 2018
758 posts
498 upvotes
Toronto
This is essentially trying to push a way of thinking. However, I really wonder.... Some things we require for society to function relies on opacity and non social/environmentally sound practices and extraction.

Look at aapl. Two or so years ago they started buying cobalt directly from miners. Late last year in December 2019 they were hit with a lawsuit related to the terrible conditions in the Congo, which really, I don't think that was unknown. Look at the troubles with Katanga.

https://www.bbc.com/news/world-africa-50812616

So, does that mean AAPL should be removed from ESG because they source (or perhaps now, sourced ") from negative ESG locations?

Costs will go up. Only thing is the hope ESG pushes the invention of new technology that can extract things like lithium and cobalt better. But that's basically flying on a wing and a prayer.


Also, this could destroy competition. Those who don't have the resources to pay for ESG are going to be shut out.
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Oct 14, 2001
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Just like buying carbon credits to offset flights and electric cars, ESG is simply a feel good type of scheme to allow investors to annoy their acquaintances about how green/virtuous they are.

You can generate solar or wind energy as much as you want, if it's being used by an airport or a refinery, it will still be part of the problem, not the solution.
Last edited by Thanh on Sep 20th, 2020 10:03 pm, edited 1 time in total.
Sr. Member
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May 31, 2018
509 posts
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The biggest problem I see with ESG is people. They most vocal are generally amazingly selfish, short sighted, narrow minded, contradictory and hypocritical when it comes to this sort of thing, and they will never be content because there is always something new coming out of the social justice/green movement/global warming (cooling)/global nationalization (isolationism) etc. etc. movements. Like cartfan123 states, these things almost become the flavour of the day and trying to appease any one vocal group at any one time puts the overall philosophy and profitability of the business in a state of continual flux.

There are certain realities about what is needed to keep over seven and a half billion people alive on this planet in the lifestyle they have become accustomed to, with many in some nominally inhospitable climates (see: Canada), and simply wishing otherwise as some people are wont to do in the name of {insert flavour of the day here} just isn't going to work. To use the Blackrock coal example above, it's simple for a group to say "stop using coal", but do any of them really think about (or be affected by) the possible consequences? Will anyone be subject to rolling blackouts? Will Tesla's be dead on the side of the road due to no available power for charging? Will there need to be more nuclear built quickly to pick up the slack? Will natural gas be burned instead, causing a NG shortage downstream and now some people are left in the cold? Will a massive amount of energy be consumed to build a wind farm that will suffer major mechanical issues a few years in and itself need to be replaced?

Sure we need to move forward in many areas, and yes quite a few companies need a nudge to get them going, but having them abandon their focus and attempt to be guided by activists and their cherry picked agendas is just nuts.
Deal Guru
Jan 27, 2006
14547 posts
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Thanh wrote: Just like buying carbon credits to offset flights and electric cars, ESG is simply a feel good type of scheme to allow investors to annoy their acquaintances about how green they are.

You can generate solar or wind energy as much as you want, if it's being used by an airport or a refinery, it will still be part of the problem, not the solution.
I wouldn't actually put carbon credits with ESG. IMHO, carbon credits are more substantial than ESG in terms of 'solid', if not debatable, concepts while ESG is too loosely defined to be able to be even considered 'solid'. I put ESG into the area of things like 'fair trade' and 'organic' where the terms are out there, everyone seems to have their own 'right' definition, and there is little if any auditing/enforcement so that there are 'standards' that everyone can agree on.
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Nov 21, 2014
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FarmerHarv wrote: To use the Blackrock coal example above, it's simple for a group to say "stop using coal", but do any of them really think about (or be affected by) the possible consequences? Will anyone be subject to rolling blackouts?
This +100. I'm not sure where this trend comes from but there seems to be a huge spike in this kind of mentality. Whether this is being over exaggerated by the media could certainly be a possibility but people have these wishful/fairy tale ideas that have serious practical challenges, hurdles and consequences. Their ideas completely ignore the realities faced by certain regions, places, demographic trends and economic realities.
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Kind of on the same topic, but with setting up my nephew's RESP account, i had to look up Halal investing as my brother in-law is Muslim. Halal investing must avoid interest, and investments in Haram industries: namely gambling, alcohol, hotels, tobacco, etc.

This kind of investing is a lot easier and more understandable. You don't want to profit from certain industries. It is also fairly easy to select companies based on this belief. Much easier and understandable than ESG which is debatable.

The interesting part of looking for the right investment was Wealthsimple offers a Halal 100% equity portfolio. The interesting aspect with this portfolio is that it is well-diversified into different stocks. The nice feature is that they only charge their management fee and there is no underlying MER, meaning it is the cheapest portfolio available at Wealthsimple.
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