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Sunday, February 21, 2021

Socially Responsible Investing Is Just A Feel Good Fad

 Like all these blogs the heading is a myth . . .for a number of reasons.

First, the largest asset management firm in the world, with $8.67 trillion on the books, is going all in with ESG investing.  BlackRock's CEO Larry Fink recently wrote a letter to CEOs predicting a "tectonic shift" in the pricing of climate risk into the value of securities.
"From January through November 2020, investors in mutual funds and ETFs invested $288 billion globally in sustainable assets, a 96% increase over the whole of 2019. . . . We know that climate risk is investment risk. But we also believe the climate transition presents a historic investment opportunity."

 But just because Larry Fink is doing it and BlackRock is saying it still doesn't mean ESG isn't a fad.  But there are other trends that do.

The Dept of labor released a new reg 10/202 that intends to limit not only ESG investing in retirement plans but even the mention of it in plan documents!  It also requires plan fiduciaries to choose investments for their participants based solely on financial performance.  Which is insane.  Private prisons are very profitable while also being a scourge on this country.  Fracking for gas is a hugely profitable enterprise with massive externalized costs, from air pollution to sullying groundwater with as yet unknown chemical cocktails.  Both are enjoying short term profitability.  Until their hazards and damage get priced in.

So how do you tell who is who?  Isn't greenwashing rampant?  Yes, it is.  But not for long.  Several organizations are growing in power and influence, based on science and increased computing power.

  • TCFD- the Task Force on Climate Related Financial Disclosures. The TCFD recommendations on climate-related financial disclosures are widely adoptable and applicable to organizations across sectors and jurisdictions. They are designed to solicit decision-useful, forward-looking information that can be included in mainstream financial filings.
    The recommendations are structured around four thematic areas that represent core elements of how organizations operate: governance, strategy, risk management, and metrics and targets.
  •  SAAB- Sustainability Account Standards Board.  SASB Standards enable businesses around the world to identify, manage and communicate financially-material sustainability information to their investors.
  •  CDP- Carbon Disclosure Porject, helping persuade companies throughout the world to measure, manage, disclose and ultimately reduce their greenhouse gas emissions. No other organization is gathering this type of corporate climate change data and providing it to the marketplace.
  • WDI- The Workforce Disclosure Initiative (WDI) aims to improve corporate transparency and accountability on workforce issues, provide companies and investors with comprehensive and comparable data and help increase the provision of good jobs worldwide.
  • FASB- Even the Financial Accounting Standards Board informally embraces sustainability reporting.

I'm confident these forces will cause the DOL to reverse it's corporate pressured stance on ESG.  A true fiduciary considers all things that can positively and negatively affect its clients.  ESG investing, and consumption, are the future.


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