Cracking Down on a Wall Street Trend: E.S.G. Makeovers

The investigations come as some Republicans have charged the S.E.C. with promoting “woke capitalism” while some sustainable investment proponents have begun to question whether Wall Street’s endorsement of E.S.G. is anything more than virtue signaling. Many of these money managers are accused of not making any notable sustainability efforts but instead simply shifting asset allocations away from certain industries, such as oil and gas, and into tech stocks.

This is what happened, to some degree, inside Goldman’s International Equity ESG Fund. In 2017, before the fund was rebranded an E.S.G. product, tech stocks made up around 3 percent of its allocations. By the end of 2018, their share in the fund had more than doubled — to more than 8 percent, according to Morningstar. Out were stocks such as Japan Tobacco and Royal Dutch Shell.

A Goldman prospectus for the revamped fund says it avoids companies that “derive significant revenue” from alcohol, gambling, tobacco, pornography, guns, for-profit prisons and oil, gas and coal.

But not all E.S.G. funds avoid the oil and gas sector. A number of E.S.G. funds, such as the DWS ESG Core Equity Fund, have sizable allocations to shares of Exxon Mobil, in part because the energy company gets relatively high marks for worker pay and promoting diversity in hiring.

The PIMCO Total Return ESG Fund, which was rebranded by the giant bond mutual fund company in 2017, has a similar mix of government bonds as does the firm’s well-known PIMCO Total Return Fund and shares the same management team. Both funds have significant dollars invested in bonds issued by Fannie Mae, the federally backed mortgage finance firm, according to Morningstar data. The E.S.G. fund has a higher percentage of investments in corporate bonds.

Many fund managers make decisions on which stocks to invest in based on a company’s E.S.G. rating, which is often generated by big financial research companies. But even those ratings don’t necessarily reflect how good a company is for the world at large — it is often a measure of a company relative to its competitors.

Article source: https://www.nytimes.com/2022/09/17/business/dealbook/esg-wall-street.html