Casting a Critical Eye at Sustainability and ESG Investing
The following post summarizes some key ideas from a recent edition of the CFA Institute podcast The Sustainability Story. CFA Institute Senior Director Matt Orsagh, CFA, CIPM, spoke with Ken Pucker, advisory director at Berkshire Partners and a senior lecturer at the Fletcher School at Tufts University. In this podcast, Pucker discusses the challenges facing sustainable finance; environmental, social, and governance (ESG) investing; and impact accounting.
Does ESG investing, in general, generate a positive impact? Ken Pucker, advisory director at Berkshire Partners and a senior lecturer at the Fletcher School at Tufts University, says currently, no.
According to Pucker, although it is true that developments in ESG have shed light on urgent planetary, environmental, and social issues forcing companies to focus on strategies that lead to more sustainable outcomes, no evidence actually supports that these efforts are producing the desired results. Furthermore, more than 90% of what’s bucketed as ESG, negative screening, and ESG integration have nothing to do with planetary outcomes.
Pucker cites the U.S. Carbon Transition Readiness Fund, BlackRock’s exchange-traded fund (ETF), which was launched the same day that global parts per million of carbon in the atmosphere hit an all-time high of 419. It raised around $1.25 billion in less than eight hours. He explains:
You’d think given the name of the fund, that it was focused on things like Tesla or renewable energy to get us ready for carbon readiness transition. But if you look at the contents of the ETF, the top five holdings are Microsoft, Apple, Amazon, Alphabet, and Facebook. The fund also holds JPMorgan and Exxon and Chevron and traditional large cap holdings, which I think is symptomatic, from an ESG standpoint, that there’s a lot more marketing than there is substance—impact, social, environmental, or planetary, or alpha.
Pucker emphasizes that he doesn’t believe companies like BlackRock are not contributing at all to ESG, but rather that their job as fiduciaries is to generate returns for their asset owners. He adds:
“I worry that the overselling of both corporate CSR and investment ESG is a contributor to deferring the action that’s required, regulatory action, to deliver sufficient planetary benefits.”
Giving investors access to comparable and accurate information so they may make better decisions is critical, says Pucker. He also views double-materiality as another piece of the puzzle as it asks for reporting on “not just the impacts of the world on the company, but [also] the impacts of the company on the world.”