We've covered some of this ground in prior posts, links below.
From Bloomberg via the Financial Post:
America’s biggest ESG fund has no direct investments in renewable energy companies. Yes, you read that right.
Instead, the $25 billion Parnassus Core Equity Fund holds stocks like Linde Plc, an industrial gas company, Deere & Co., the largest manufacturer of agricultural machinery, and Xylem Inc., which makes water and wastewater pumps for municipal customers. It also owns big stakes in technology behemoths Microsoft Corp. and Amazon.com Inc.
Managers of many environmental, social and governance funds were slammed in 2020 for running what amounted to index-trackers that relied on tech stocks to beat their market benchmarks–albeit with shiny green labels.
While Ben Allen, co-manager of the Parnassus fund, doesn’t dispute this critique of the ESG industry, he said his fund is different. Its assets are concentrated in 40 large-cap stocks that are measured against ESG metrics. He said publicly traded renewable energy companies aren’t big enough or mature enough to meet Parnassus’s investment criteria.
In September 2018, Parnassus decided to sell its one remaining holding in fossil-fuel companies. The firm also said it avoids direct investments in any energy-focused company unless management has a comprehensive plan to address their carbon-intensive businesses.
“It’s true that we don’t own any pure-play solar manufacturers, but the portfolio is full of companies that are committed to the transition away from carbon,” said Allen, who’s also chief executive officer of San Francisco-based Parnassus Investments, which oversees about $41 billion for clients.
The Parnassus fund has risen at an annual rate of 17.2% during the past three years as of Feb. 26, outperforming the 13.2% advance of the S&P 500 Index, including reinvested dividends.
Linde is a company in which the Parnassus fund held a $704 million stake as recently as Jan. 31. Its products are designed for “industrial applications to be as clean as possible,” Allen said. Linde is a leader in the hydrogen market and looking to triple its clean-hydrogen production, and has earmarked more than one-third of its annual research and development budget over the next decade to decarbonization, Allen said.
Microsoft, another large Parnassus holding, has pledged to remove all of its historical carbon emissions by 2050, Allen said. “In effect, Microsoft is winding back the clock to the 1970s,” Allen said. “It’s as if the company never existed.”
Until recently, Amazon was considered a pariah of the ESG industry, Allen said, having waited until 2019 to publish its first sustainability report. Amazon subsequently pledged that it will zero out its carbon footprint by 2040, or eliminate the greenhouse-gas emissions caused by its activities....
...MUCH MORE
Suddenly burning a Banksy print to quadruple your money doesn't seem so far-fetched.
Knowledge@Wharton:: "Why ESG Investors Are Happy to Settle for Lower Returns"
Warning: Because there is a paucity of alt-energy stocks that don't rely on cobalt mined by children in the DRC (for example), certainly not $30 trillion worth, the vast majority of equities touted as ESG by the marketeers are tech stocks.
In part this is because the Google's of the world can claim energy efficiency by talking revenue per kilowatt of electricity used or carbon neutrality because their data centers use hydro-produced electricity or because they don't have smokestacks that some ambush photojournalist can snap pictures of or, whatever.
What this means in practical terms is that when you buy ESG you are buying growth and hypergrowth stocks. Meaning that if there actually is a rotation to value/small cap/other factors etc,. ESG is going to lag, possibly dramatically and ESG investors had better be resigned to underperformance for a long time, and possibly until behaviors are mandated by force of law...
What it means for your returns is that you end up with a Nasdaq 100 tracker.
And not just the 100 but in truth the top ten weights which amount to almost 50% of the index:...
....Why is this the case? Because there are, what's the number being bandied about, $30 trillion? Thirty trillion in assets that are being peddled as Environmental, Social and Governance sensitive names.
So there is a huge battle going on among the behemoth marketeers to be the one to define what is meant by the terminology so as to advantage their own businesses.
And these product packagers, BlackRock with $7 trillion, State Street with $3 trillion, Vanguard and Fidelity with $9 trillion between them, have the clout to call whatever they want whatever they want, and make it stick.....
AQR Capital's Cliff Asness on Environmental/Social/Governance (ESG) Investing
Professor Damodaran: "Sounding good or Doing good? A Skeptical Look at ESG"
And many more, use the 'search blog' box upper left if interested.
