ESG: Nothing More than Feelings?
Investment themes are cyclical. Asset class sectors rotate. But when Wall Street invents a new investment fad, buyer beware. On the surface, investing with a concern for environmental impact, social justice and scandal-free governance sounds delightful. But the devil is below the surface, in the details. Such is the case with ESG.
An index doesn’t exist in nature. It’s man-made. A Wall Street think tank peruses the data and assembles a collection of stocks using certain rules and filters. That can be very helpful. When the rules are subject the whims of the woke Wall Street, it can be unhelpful. Case in point: Tesla was removed from the SP 500 ESG Index after CEO Elon Musk violated codes of business conduct. (Their Side of the story here: https://www.cnbc.com/2022/05/18/why-tesla-was-kicked-out-of-the-sp-500s-esg-index.html)
In the interest of full disclosure, Mr. Musk is not currently a client of Privada Wealth Management. So I’m not just saying this to butter him up: he makes a good point. The ESG index has a lot of room for interpretation. The rules are not hard numbers but instead the feels.
Here at Privada Wealth Management, we strive to adhere to strategies that are based on rules. We know that fear and greed are great motivators, but terrible tools for decision making. Any rules based index that allows for a wide range of interpretation based on political, ideological and subjective factors should be seen as limited at best and deleterious at worst. I recommend you look at both sides of the story. Here’s a great start. https://www.bloomberg.com/news/articles/2022-05-31/esg-fund-clients-demand-proof-strategy-works-amid-backlash
Whether you agree or disagree with me, I’m here to talk.