According to Bloomberg, the ESG industry is facing an increasing amount of criticism despite its incredible growth.
ESG means Environmental, Social, and Governance – the non-financial factors that are impacting how investors make decisions. Interest and adoption of these factors continues to grow among investors, but understanding how to measure ESG remains challenging.
Nearly 80 percent of institutional investors expect to make ESG investment central to their portfolio, according to BNP Paribas ESG Global Survey. Emerging investors are also jumping on board, with Morgan Stanley reporting 52 percent of the general population and 67 percent of millennials take part in at least one sustainable investing activity.
While the industry is worth as much as $40 trillion, a large portion of that value is reportedly due to greenwashing. The investment head of the $660 billion Dimensional Fund blasted the ESG segment for ‘struggling both in terms of real-world impact and returns’, finding that activist investors have generally failed to bring about structural changes in firms.
The theory that sustainable investors will ultimately change the cost of capital for companies has failed to materialize, with a recent Goldman Sachs report finding that the ongoing focus on decarbonization is in fact doing the exact opposite. After ESG funds performed marginally better than conventional products from 2019 to 2021, this year has seen continuous declines, with European ESG stocks dropping 14% so far to date, whilst oil stocks soared.
Recession qualms keep investors from taking larger positions.The hedge fund community sold the equivalent of 5 million barrels in the six key futures contracts last week and despite the still-strong bullishness (long-to-short ratio at 6:1) the combined long positions are still ‘only’ 599 million barrels.UK wants to keep coal-fired power plants for the winter. Having scared the populace with past statements saying that up to 6 million people could experience power rationing in the winter, the UK government subsequently announced that it would keep coal-fired plants open throughout the winter.
Iran oil revenue up 60% on higher prices. The Iranian Oil Ministry stated that over the past months its oil, condensate, and gas export revenues rose 60% year-on-year, as triple-digit prices were boosted by crude exports moving up to some 900,000 b/d. Venezuela allows diesel sales in US dollars. Venezuela’s state oil company PDVSA has ordered petrol stations across the country to sell diesel in dollars, scrapping a subsidy that allowed many poor citizens to buy the fuel almost for free, with the new retail price set at $0.50 per liter.