The Dirty Truth About ESG investing: It’s Missing the E.

​Tesla very famously was booted out of the S&P Global’s E.S.G. Index on May 17, 2022. S&P Global explained their decision in a blog, writing, “While Tesla may be playing its part in taking fuel-powered cars off the road, it has fallen behind its peers when examined through a wider ESG lens.”

Elon Musk responded with a series of Tweets calling the index a “scam,” and noting that Exxon Mobil was in the index. He also shared the above Tweet mentioning that there are 6 oil companies in the index. (There are actually at least 15 oil and gas companies in the index.) Is oil the only dirty little secret of E.S.G. investing? Would Mother Nature be including the companies that S&P Global has chosen for their ESG index? What about those self-proclaimed “socially conscious” funds?
 
ESG is the hot new way of investing. The acronym wraps environmental, social and governance factors into one blanket, offering climate-action and socially-conscious investors a feel-good idea for growing their wealth. However, a look into the actual holdings of these funds reveals that the “E” is missing.  
 
Fossil Fuels
Just 20 of the world’s largest fossil fuel companies are responsible for over 1/3 of the CO2 in the atmosphere. Over half of each barrel of oil is used to make plastic, polyester, asphalt, rubber and other petrochemical products. The S&P Global’s E.S.G. Index includes 15 oil companies and 15 plastics, petrochemicals, and single-use waste-generating companies. If we add in the gasoline-powered automobile companies, airlines and cruise ships (heavy CO2 footprint) and the plastics and petrochemical companies, the number of problematic CO2 companies on the ESG list jumps to at least 30 – about 10% of the list. Add in the environmental impact of biotechnology and mining, which are both hard on our home planet, and the percentage jumps to 20%.
 
The self-described socially conscious fund companies always include banks (which fund oil and other environmentally-toxic businesses), consumer products (many of which promote single-use plastic or paper waste) and even some traditional (gas-guzzling) automotive companies.
 
Plastic and Forest-Clearing
Less than 10% of plastic was recycled in the U.S. Forests are being cleared for toilet paper and single-use paper waste. The NRDC publishes a Report Card assigning high marks to companies that are using recycled paper for their products, compared to companies that are clearing old-growth forests, which their customers are flushing down toilets.
 

Single-Use
Many companies in the ESG and socially conscious funds have a single-use, waste problem. Since recycling isn’t happening, it’s important to focus on the first 5 of the 6 Rs of sustainability – Rethink, Refuse, Reduce, Repair, Reuse. That means that all of us need to pack our water canteen, canvas bags/backpack and reusable coffee mugs on our errand runs (ideally locally, on a bike).
 
Petrochemicals, Dead Zones and Health Hazards
The Dead Zone in the Gulf of Mexico results from toxic agricultural run-off from industrial farms along the Mississippi River. There is a Cancer Alley in Louisiana, due to the amount of oil and petrochemical refineries in the region. Long-term pesticide exposure increases the risk of diabetes, according to studies by the NIH.
 
Bottom Line
The truth about ESG and socially conscious investing is that many of these funds are missing the environmental filter that their clients are relying upon. Whether or not they live up to the SG is for a separate analysis. Mother Nature would be canning at least 30 companies that are included in the S&P Global ESG Fund (probably double that amount), if she were creating an environmentally-conscious fund. Don’t be misled by the fancy title, which is a clear case of false advertising. If you care about the environment and you don’t have time to dig into all of the holdings of the funds, E.S.G. investing is just too CO2 for clean hands.
 
If you’re interested in healing our planet, take our challenge to reduce your personal CO2 footprint by 30% this year. Learn more in The Power of 8 Billion: It’s Up to Us.


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Natalie Wynne Pace is an Advocate for Sustainability, Financial Literacy & Women's Empowerment. Natalie is the bestselling author of The Power of 8 Billion: It's Up to Us and is the co-creator of the Earth Gratitude Project. She has been ranked as a No. 1 stock picker, above over 835 A-list pundits, by an independent tracking agency (TipsTraders). Her book The ABCs of Money remained at or near the #1 Investing Basics e-book on Amazon for over 3 years (in its vertical), with over 120,000 downloads and a mean 5-star ranking. The 5th edition of The ABCs of Money was released on September 17, 2021. 
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