It All Comes Out in the Greenwash: An Analysis of the ESG Product Landscape

Environmental, Social, and Governance (ESG) funds were supposed to give investors a way to do well while doing good. However, closer examinations of such products have led to mounting frustrations with the funds and investment managers who offer them.

For instance, the Financial Times recently reported that two prominent ETFs with sustainable mandates hold shares of coal- related energy and mining companies even though the products are marketed as excluding fossil fuels.  Some investors were equally surprised to learn that the fifth largest carbon polluter in the world, Exxon Mobile, was a top holding of the Xtracker S&P500 ESG ETF as of 9/30/19.  The labeling of such funds as environmentally and socially conscious has led some to conclude that ESG is little more than a repackaging of traditional stock indices with justification for higher fees.

Unsubstantiated claims of environmental, social, and governance performance, or greenwashing, inspire cynicism and cause many investors to consent to portfolios that run contrary to their values. The resulting malaise motivated the team at Change Finance to examine the current ESG product landscape.