3. ESG investing is the Wild West
Socially conscious and sustainable investing is surging, but there's a lack of consensus standards and definitions and the practice would benefit from more federal oversight, Barclays analysts say in a new report.
Driving the news: A key takeaway is that self-identified U.S.-focused ESG funds are not especially different than their non-ESG counterparts.
- "Using two decades of funds’ holding data, we find that ESG-labelled funds do not necessarily provide more ESG exposure than conventional ones," they find.
- It adds that "ESG funds have higher, but not significantly different, ESG scores than those of non-ESG funds."
Another takeaway: Returns from ESG vs. non-ESG funds are quite similar, with ESG funds providing slightly better performance over the last two years.
How it works: They explored the universe of U.S. equity funds focused on ESG — environmental, social, and governance — investing.
- The analysts looked carefully at the makeup and performance of ESG funds compared to their non-ESG brethren.
- They checked them against how individual stocks within both categories of U.S. funds perform on ESG criteria in the eyes of two firms that specialize in company-level ESG assessments (MSCI and Vigeo Eiris).
Why it matters: ESG investing is growing a lot. As of early this year, sustainable mutual and exchange-traded funds focused on U.S. equities had over $240 billion in assets under management, or about 2.3% of overall U.S. equity fund assets.
- And while ESG comprises a suite of topics, one part is environmental and climate-focused amid growing pressure on companies to prepare for the effects of global warming and lower their CO2 emissions.
What's next: They recommend creation of a federal "Office of ESG Ratings."
- It would "harmonize the ESG data measurement, providing guidelines on what dimensions to assess in E, S and G, and their relative weights, both within each dimension and in the construction of the composite ESG index."
Go deeper: The stage is set for a battle on sustainable investing