– Whether ESG investment is a fallacy, or not? Answer: Yes! Even though the United Nation is promoting ‘Sustainable Outcomes’ through the Principles for Responsible Investment (PRI) https://www.unpri.org/pri-blog/responsible-investing-the-esg-efficient-frontier/5604.article, and the Security Exchange Commision (SEC) is continuously taking actions to improve the regulations on ESG, as it was recently demonstrated in the ESG Integration Forum and SASB Symposium 2020, where they proposed to change the Rule 14a-8, which would change the value of shares an investor must hold in a company before being able to put forward a proposal.
https://www.irmagazine.com/regulation/us-regulatory-environment-has-shifted-dramatically-esg-say-legal-experts; managers of bid index funds are still voting against climate-related shareholder proposals. Some articles claim that the “power in the investment market belongs to fund intermediaries, which are the key deciders of corporate elections and represent the interests of millions of investors when voting”. They are continue to finance the destruction of human civilization, and since the portafolios aren’t clear “passive” investors unknowing where their money is going to. As stated by the Fordham Law professor and Dorothy Lund, a law professor at the University , in a recent article”. (Please develop this argument).
On the other hand, “ESG investing as we know is relatively new and hasn’t been tested in a real-life market downturn scenario.” https://www.bloomberg.com/news/articles/2020-03-09/esg-investors-brace-for-bear-market-test-amid-global-stock-rout
– Who are the key deciders of the biggest investment transactions? Answer: Big Index Funds such as BlackRock and Vanguard. Please focus on the power that the managers of index funds have in major investment decisions through the voting system. Proxy. For this argument check the report attached and the first bloomberg article. Also mention the “potential effects on anti-competitive conduct” by index managers.
Are managers doing ESG analysis? Answer: Yes, but I am not sure to what level or what are the parameters used to evaluate ESG factors in a company when they are voting to invest in these companies.
Do passive investors know what kind of companies they are investing in? Answer: No, this is unclear for passive investors, but I believe that in most cases passive investors do not care on which companies they are investing in as long as I get the best return on the money invested. From my personal experience, I can say that I did not think about investing in companies that promote an improvement in climate change or social responsibility. However, moving forward I might consider these factors when investing my money.
Is there any way to limit the potential downsides of the Big Three’s dominance? State Street CEO Ron O’Hanley has suggested having individual fund managers vote the shares in their portfolios, rather than the parent fund company voting all the aggregated shares. “My view is we should be open to change on this,” he told the Wall Street Journal in December. (please reinforce this argument as a point of view. You can cite this statement, but at the same time make it strong with a personal overview).
Has ESG stopped the market from declining? Is it supposed to? Can it? Should it? Answer: ESG indicators are mostly created as a benchmark for investors to assess the social, environmental, and governance performance of a company. The increasing concern toward ESG issues has led to a rapid growth of SRI, fulfilling both financial and social goals of investors (Renneboog, Horst & Zhang, 2008a).
I personally believe it is too early to determine whether ESG has stopped the market from decline, I will assume that in the long-term it will, but investors would have to focus less on their quarterly returns. Investment firms face increasing pressure from shareholders and employees, as well as activist groups, to use their vast resources to tackle climate change and other environmental and social problems, leading many of the major financial companies to announce commitments to ESG. However, responsible investment campaign group ShareAction said “that 38 of the world’s largest asset managers, who manage a combined total of $ 36 trillion of assets, are neglecting the ecological and social damage of their investments.”
Additional thoughts:
Now, with the coronavirus situation the crude prices crashed 30% at the beginning of March 2020, and this may be a turning point for money managers who adhere to environmental, social and governance investment principles.
Coronavirus Is Shifting the Focus of Leading ESG Investors, I believe that climate issues are less relevant today than they were 2 months ago. Investors now are focusing on social issues.
On the hand, it caught my attention that one of the biggest funds, BlackRock, joined the World’s Largest Investor Group on Climate Change.
Instructions:
This is a thesis/argument not a mere overview of rules and regulations, or copy paste other’s opinions.
No wholesale insertion of rule text in body, please use footnotes.
Please write with passion, and develop the position that I defend in the answer section above with the research I provided below. Be thoughtful
Use Bluebook citation.
Research Articles:
Main articles:
https://www.bloomberg.com/news/features/2020-01-09/the-hidden-dangers-of-the-great-index-fund-takeover
https://www.bloomberg.com/news/features/2020-01-09/the-hidden-dangers-of-the-great-index-fund-takeover
https://static1.squarespace.com/static/5d4df99c531b6d0001b48264/t/5d8006692e5b035cf0d2b17f/1568674165939/assetmanagerreport2019.pdf
Reports attached.
https://www.irmagazine.com/regulation/us-regulatory-environment-has-shifted-dramatically-esg-say-legal-experts
Secondary articles:
https://www.unpri.org/pri-blog/responsible-investing-the-esg-efficient-frontier/5604.article
https://www.reuters.com/article/us-global-asset-management-breakingviews/breakingviews-breakdown-esg-investing-faces-sustainability-test-idUSKCN1SY1VM
https://news.trust.org/item/20190805085704-tkvl2
https://www.irmagazine.com/regulation/us-regulatory-environment-has-shifted-dramatically-esg-say-legal-experts
https://www.wsj.com/articles/blackrock-joins-worlds-largest-investor-group-on-climate-change-11578594349?mod=article_inline
https://static1.squarespace.com/static/5d4df99c531b6d0001b48264/t/5d8006692e5b035cf0d2b17f/1568674165939/assetmanagerreport2019.pdf
https://news.bloombergenvironment.com/environment-and-energy/making-big-oil-pay-for-climate-change-may-be-next-to-impossible
https://www.invesco.com/dam/jcr:2dc740c6-1dee-4b5e-ba86-98f653bae7ca/Sustainable-factor-investing-US12552.pdf
