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Today’s Environment for ESG Investing

ESG investing targets companies that follow positive environmental, social, and governance principles. The style exploded in popularity over the previous decade. In 2020, even the Rockefeller Foundation – created 90 years earlier by John D., whose Standard Oil owned 90% of the refineries at one point – committed to divest all of its fossil fuel investments.

At its height in 2021, ESG was cited during 155 of the S&P 500’s quarterly earnings conference calls during the fourth quarter of that year. Since then, its popularity has steadily declined. In 9 of the last 10 quarters, ESG has been mentioned less and less frequently quarter after quarter. In the fourth quarter of 2023, ESG was mentioned during only 29 conference calls, well below the five- and ten-year average of 82 and 43, respectively.

Clearly, there has been a backlash against political correctness or, dare we say, anything that looks and sounds “woke”. Some state legislatures are even forbidding pension plans from making ESG investments.

Many of the high priced mutual fund managers claim to follow an ESG investment strategy, but a look under the hood suggests otherwise. The Ontario Securities Commission (and soon the U.S.’s Securities and Exchange Commission) requires the holdings in an investment fund to reflect its name. In other words, funds that market an ESG investment style must practice what they preach. 

However, what if an investor buys an ESG fund and disagrees with owning one of the many investments held inside the fund?

Prior to onboarding a new client, we ask a barrage of questions. This is to make sure that we design a suitable portfolio, which matches the person’s risk profile, time horizon, and other expectations. One of our questions is whether we are restricted from investing in any particular stocks or sectors.

The usual suspects – tobacco and guns – are themes we wouldn’t invest in anyways. Tobacco companies kill their customers while gun manufacturers are beholden to changes in government policy.

However, sometimes it’s less obvious. Our code of ethics isn’t always in sync with every client. 

We have 51 clients in total that stretch from the Pacific to the Atlantic, and everyone is unique.

One client has a restriction against retirement homes. Another doesn’t want any pharmaceuticals. However, we wouldn’t shy away from either of those sectors due to ethical reservations. Energy comes up on occasion, but does that include banks who loan money to oil and gas companies? Does it include car manufacturers that sell combustible automobiles?

Ethical investing requires input about a person’s unique preferences. It’s our job to make sure we follow each client’s wishes. Unlike a mutual fund – especially those that claim to be ESG investors – we design a tailored portfolio for each client that takes into consideration personal restrictions against any stock or given sector.

-by Jeff Pollock

DISCLAIMER: The opinions expressed in this publication are for general informational purposes only and are not intended to represent specific advice. The views reflected in this publication are subject to change at any time without notice. Every effort has been made to ensure that the material in this publication is accurate at the time of its posting. However, Schneider & Pollock Wealth Management Inc. will not be held liable under any circumstances to you or any other person for loss or damages caused by reliance of information contained in this publication. You should not use this publication to make any financial decisions and should seek professional advice from someone who is legally authorized to provide investment advice to assess your goals and objectives, personal circumstances, and make an informed suitability assessment.


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