ESG gurus just banned Tesla for not being ESG enough while Exxon is OK. WTF!
NT is very exposed to ESG indexing... but when investors realize that ESG is leftist BS they may exit these strategies. They should.
NT does not have the economies of scale to be either a cheap indexer or a good active asset manager. So the demise of ESG will result in NTRS layoffs.
NTRS had about $170 billion in ESG funds - Q1 2022. ESG funds are just index funds with weights based on ESG ratings. The beauty of ESG funds is that fees are far higher than standard index fees.
The problem occurs when ESG returns fall short of expectations. Then the promise of "Doing Good and Doing Well" falls apart. This will invite many investor lawsuits.
Harvard Research Says “ESG sacrifices financial returns without gaining much”.
https://hbr.org/2022/03/an-inconvenient-truth-about-esg-investing
An Inconvenient Truth About ESG Investing, by Sanjai Bhagat, University of Colorado
Investing in sustainable funds that prioritize ESG goals is supposed to help improve the environmental and social sustainability of business practices. Unfortunately, close analysis suggests that it’s not only not making much difference to companies’ actual ESG performance, it may actually be directing capital into poor business performers.
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How have investors fared? Not that well, it seems.
To begin with, ESG funds certainly perform poorly in financial terms. In a recent Journal of Finance paper, University of Chicago researchers analyzed the Morningstar sustainability ratings of more than 20,000 mutual funds representing over $8 trillion of investor savings. Although the highest rated funds in terms of sustainability certainly attracted more capital than the lowest rated funds, none of the high sustainability funds outperformed any of the lowest rated funds.
That result might be expected, and it is possible that investors would be happy to sacrifice financial returns in exchange for better ESG performance. Unfortunately, ESG funds don’t seem to deliver better ESG performance either.
Researchers at Columbia University and London School of Economics compared the ESG record of U.S. companies in 147 ESG fund portfolios and that of U.S. companies in 2,428 non-ESG portfolios. They found that the companies in the ESG portfolios had worse compliance record for both labor and environmental rules. They also found that companies added to ESG portfolios did not subsequently improve compliance with labor or environmental regulations.
This is not an isolated finding. A recent European Corporate Governance Institute paper compared the ESG scores of companies invested in by 684 U.S. institutional investors that signed the United Nation’s Principles of Responsible Investment (PRI) and 6,481 institutional investors that did not sign the PRI during 2013–2017. They did not detect any improvement in the ESG scores of companies held by PRI signatory funds subsequent to their signing. Furthermore, the financial returns were lower and the risk higher for the PRI signatories.
Why are ESG funds doing so badly? Part of the explanation may simply be that an express focus on ESG is redundant: in competitive labor markets and product markets, corporate managers trying to maximize long-term shareholder value should of their own accord pay attention to employee, customer, community, and environmental interests. On this basis, setting ESG targets may actually distort decision making.
There’s also some evidence that companies publicly embrace ESG as a cover for poor business performance. A recent paper by Ryan Flugum of the University of Northern Iowa and Matthew Souther of the University of South Carolina reported that when managers underperformed the earnings expectations (set by analysts following their company), they often publicly talked about their focus on ESG. But when they exceeded earnings expectations, they made few, if any, public statements related to ESG. Hence, sustainable fund managers who direct their investments to companies publicly embracing ESG principles may be over-investing in financially underperforming companies.
The conclusion to be drawn from this evidence seems pretty clear: funds investing in companies that publicly embrace ESG sacrifice financial returns without gaining much, if anything, in terms of actually furthering ESG interests.
Harvard Business Review, May/June 2022. Sanjai Bhagat is Provost Professor of Finance at the University of Colorado, and author of Financial Crisis, Corporate Governance, and Bank Capital, published by Cambridge University Press.
https://hbr.org/2022/03/an-inconvenient-truth-about-esg-investing
Aswath Damodaran says that ESG has been oversold and overhyped by its proponents, partly because ESG index fees are higher than non-ESG index fees. This overselling of the ESG performance alpha will lead to fiduciary lawsuits.
https://pages.stern.nyu.edu/~adamodar/
THE ESG MOVEMENT: THE GOODNESS GRAVY TRAIN ROLLS ON!
NT ESG shenanigans will be revealed soon...
The Fraud Journal warns "Place 'ESG' on your radar" after SEC "risk Alert" on ESG misrepresentation
"The temptation to demonstrate a strong ESG program through misrepresentations led to an April 9 U.S. Securities and Exchange Commission (SEC) “Risk Alert” specifically addressing management misrepresentation. The alert calls on market participants promoting ESG investing to assess whether their public statements and claims related to ESG are accurate and consistent and subject to oversight by compliance. “Firms should also consider taking steps to document and maintain records relating to important stages of the ESG investing process,” it says. (See “Risk Alert: The Division of Examinations’ Review of ESG Investing,” SEC, April 9.)
The SEC crackdown on "Greenwashing" ESG funds was in the WSJ on May 25.
"SEC Proposes More Disclosure Requirements for ESG Funds", By Paul Kiernan
WASHINGTON—Regulators proposed new disclosure and naming requirements for investment funds that tap into public angst regarding climate change or social justice, in an effort to address concerns about “greenwashing” by asset managers seeking higher fees. The Securities and Exchange Commission voted Wednesday to issue two proposals that aim to give investors more information about mutual funds, exchange-traded funds and similar vehicles that take into account ESG—or environmental, social and corporate-governance—factors. One of the proposed rules, if adopted, would broaden the SEC’s rules governing fund names, while the other would increase disclosure requirements for funds with an ESG focus.
Deutsche Bank Raided Over Allegations of "Greenwashing". What US Bank May Also Face Charges of "Greenwashing?
Greenwashing is the process of conveying a false impression or providing misleading information about how a company's products/services/funds are more environmentally sound. Greenwashing is considered an unsubstantiated claim to deceive consumers into believing that a company's products are environmentally friendly.
https://www.bloomberg.com/news/articles/2022-05-31/deutsche-bank-s-dws-unit-raided-amid-allegations-of-greenwashing
"America’s Political Right Has a New Enemy No. 1: ESG Investors
The popular investing strategy is drawing new partisan attacks ahead of the US midterm elections"
https://www.bloomberg.com/news/articles/2022-05-20/why-esg-investing-is-under-republican-attack
NT is getting squeezed and will get fu---d, bought, merged.