Debate Swirls Around ESG Investing

Some investors are calling for more transparency surrounding ESG funds, which are invested in companies that meet environmental, sustainability, and governance criteria. Firms including BlackRock, Vanguard, and Fidelity have launched such funds to incentivize values including diversity, equity and inclusion, pollution and carbon emissions reductions, and data security, among others.

But these investment firms are facing questions about their actual commitment to fighting climate change. In September, the New York Comptroller said he was reassessing the city’s relationship with BlackRock and other asset managers, as environmentalists protest that the firm does little to influence fossil fuel portfolio companies. Republicans, conversely, accuse BlackRock of boycotting energy stocks.

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"BlackRock cannot simultaneously declare that climate risk is a systemic financial risk, and argue that BlackRock has no role in mitigating the risks that climate change poses to its investments by supporting decarbonization in the real economy,” Comptroller Brad Lander wrote in a letter to BlackRock Chief Executive Officer Larry Fink.

On the other hand, citing the firm’s ESG strategies, the state of Louisiana said it would pull $794 million from BlackRock’s funds.

In a New York Times op-ed, New York University Stern School of Business professor Hans Taparia contended that many investors believe their portfolios are providing environmental and social benefits when they may not be, saying that ESG investing is really aimed at maximizing shareholder returns.

But others argue that ESG investing is in fact benefiting the world. It’s “most definitely not a sham,” said Arne Noack, head of systematic investment solutions for the Americas at DWS. “What ESG investing is, is very simply put, an incorporation of publicly available data into investment processes. None of this is done opaquely. All of this is done very transparently.”

ESG funds currently comprise 6% of exchange-traded funds by number and 1.5% by ETF assets.