Invest: Should ESG funds buy fossil-fuel company shares?

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I suppose a minimal form of “environmental, social and governance investing” would be “don’t invest in fossil-fuel producers.” There is a lot wrong with that, as a definition of ESG. Many thoughtful ESG investors would say that you should invest in fossil-fuel producers: You pick the best fossil-fuel producers (the ones best positioned for a climate transition) and give them your money, to incentivize good behavior, or maybe you pick the worst ones and do activism to try to change their policies. And of course “ESG” means a lot of things other than carbon emissions; you’ve got S and G right there in the name, so you might want to avoid, say, green tech companies with bad governance or bad labor relations or whatever. Still the most salient thing is pretty much fossil-fuel production, and a crude expectation is that ESG funds will avoid fossil-fuel companies.

This creates an opportunity:

  1. Lots of funds don’t invest in fossil-fuel companies, not because they are “ESG” but because they are, you know, tech funds, or healthcare funds, or consumer funds, or whatever: They invest in some sector or style that excludes the energy sector. Are big tech companies all “ESG”? Well, you could have various complaints about their governance or social impact or even their environmental impact, but they are all indisputably not fossil-fuel producers.
  2. ESG is hot right now.
  3. Call your tech fund an ESG fund, why not, it meets that minimal definition of ESG. You don’t have to do anything different, but now you can raise lots of money from investors who want an ESG fund.

The US Securities and Exchange Commission is investigating Goldman Sachs Group Inc. over its ESG marketing:

The SEC’s civil investigation is focused on Goldman’s mutual-funds business, the people said, and the firm manages at least four funds that have clean-energy or ESG in their names. The probe could end without formal enforcement action.

Regulators have sometimes expressed concerns that ESG—which doesn’t have a defined regulatory meaning—can be a superficial way to market financial products to shareholders’ desire to address subjects such as climate change or diversity in the workplace. …

Goldman renamed its Blue Chip Fund as the U.S. Equity ESG Fund in June 2020. The fund’s top three holdings—Microsoft Corp., Apple Inc., and Alphabet Inc.—-have remained the same since then, according to regulatory filings. The U.S. Equity ESG fund’s other top holdings currently include Bristol-Myers Squibb Co., Eli Lilly & Co., and JPMorgan Chase & Co., according to its website. 

None of those are oil companies! Seems fine.