October 12, 2023
Op-ed by Dr. John Polimeni, Schenectady New York Councilmember, Professor Ecological Economics
There are now over 830 registered ESG investment firms that are working to help green the planet. These values-driven funds seek to balance financial returns with the longer term implications of a company’s environmental, social and business governance policies.
As the climate crisis has become abundantly clearer in these past few years the desire for these types of investments is steadily increasing. In 2020, the assets managed by these firms was $3.10 trillion, up 19 percent from 2018. And the number of individual investors that employed ESG-based strategies in at least a quarter of their portfolio decisions increased from 48 percent in 2017 to 75 percent in 2019.
ESG focused investments perform in the marketplace and have real financial value. Clean energy pays.
As noted by Morningstar, for 2020 overall, 11 of 12 sustainable equity funds beat the S&P 500 index fund, led by IQ Candriam ESG US Equity ETF (IQSU) and Calvert US Large-Cap Core Responsible Index (CISIX), both of which are based on proprietary ESG indexes. The 22.4 percent average sustainable index fund return easily beat iShares Core S&P 500 ETF (IVV) 18.4 percent return for the year.
JUST Capital ranks companies based on factors such as whether they pay fair wages or take steps to protect the environment. It created the JUST U.S. Large Cap Diversified Index (JULCD), which includes the top 50 percent of companies in the Russell 1000 (a large-cap stock index) based on those rankings. Since its inception, the index has returned 15.94 percent on an annualized basis compared with the Russell 1000’s 14.76 percent return.
These, and several other studies, document that ESG focused investments easily match or exceed the financial returns of more traditional investment funds like fossil fuels. There is no demonstrable performance penalty associated with an investment strategy that includes ESG considerations. It is possible to do be both a responsible investor and to invest responsibly.
This is why there has been virulent pushback to stop ESG investing — these environmentally friendly business models work thereby jeopardizing the fossil fuel stranglehold on investments. In order to transition to clean energy economy ESG has to be implemented responsibly at all levels.