From Bloomberg via Advisor Perspectives, September 9:
There are vast inconsistencies between the stated climate objectives of money managers and “the reality of their investments.”
While perhaps an unsurprising statement given all the reporting on Wall Street greenwashing, this conclusion by Paris-based business school EDHEC is tied to a more nuanced assessment of strategies behind climate-focused funds. While asset managers talk at length about the use of climate data to construct their ESG portfolios, many funds aren’t run “in a manner that is consistent with promoting such an impact,” EDHEC academics wrote in a 65-page report entitled “Doing Good or Feeling Good? Detecting Greenwashing in Climate Investing.”
The findings add to a growing body of research questioning the climate and ESG-related credentials of this burgeoning corner of the asset management industry. Regulators in the U.S. and Germany have started separate investigations into potentially misleading investment products touting their environmental, social and corporate governance bona fides.
With supercharged hurricanes, massive floods and unprecedented wildfires sweeping the globe, it’s well past time for asset managers to start doing the right thing, said Felix Goltz, a member of the EDHEC-Scientific Beta research chair that compiled the study. But when one digs into how most of the largest climate funds are truly invested, one finds very few differences relative to major market benchmarks like the Standard & Poor’s 500, he said.
“Even though investors and managers communicate extensively about the use of climate data to construct their portfolios, these data points represent at most 12% of the determinants of portfolio stock weights on average,” Goltz said.
Looked at another way, this means that 88% of what guides a climate fund is what you’d find behind any other, non-green investment.
Questions about exaggerated claims abound, since the vast majority of funds claiming adherence to net-zero investment strategies are subject to “large and obvious greenwashing risks,” Goltz said.
One of those risks is the temptation to game the system so as to earn better scores rather than truly make a difference. Money managers, along with regulators, should reassess the investment standards and practices in the area of climate alignment, Goltz said. Funds need to go beyond displaying the “green scores” of their portfolios and instead invest in stocks “in a way that provides incentives for companies to act on climate change.”....
....MUCH MORE
When a business/finance researcher uses language like "With supercharged hurricanes, massive floods and unprecedented wildfires sweeping the globe" you can tell he's a newbie to the science.
Just yesterday I was looking for hurricane data from the Roman Climatic Optimum and the Minoan Warm Period and the so-called paleotempestology gets pretty sparse at even 1200 years ago, much less 2000 and 3500.
And that's just a moment ago in time. If we are looking back to previous interglacial periods what were the hurricanes like in the Eemian interglacial, 125,000 years ago? Or the one a quarter-million years ago? Or the interglacial a million years ago. And 50 million years ago? 500 million?
Just what are we comparing the present to when we make these sweeping statements?
We just went through an 11-year period 2006 - 2016 with zero cat 3 and above landfalling hurricanes hitting the U.S. Is that our baseline?
None of the coupled climate models had that happening. (Sandy wasn't much more than a giant tropical storm when it made its New Jersey landfall but throw in a landing at daily high tide and the full moon monthly high tide and Chris Christie walks President Obama to re-election)
The thing is, we just don't know what is "normal" and all we can do is hope that our recency bias doesn't lead us into some very dark (literally and politically) places as we feel our way forward.
