ESG Investing: Does It Distort The Market?

Video length 00:16:45

If you thought ESG investing was a slowly emerging trend in capital markets, think again. The Environment, Social, & Governance imperative for companies, new-fangled "ratings agencies," and the money managers who must decide whether or not to buy the stocks is now a very big part of the market and a giant business unto itself.

According to the Nasdaq exchange, ESG-integrated strategies assets under management (AUM) were $8.2 trillion as of the end of 2020, up 34% from the end of 2018. More on Nasdaq research coming up.

$30 trillion. That was the amount of assets cited in late 2019 by Linda-Eling Lee, then Global Head of ESG Investing for MSCI, that now "fall under the broader umbrella of sustainable investments." This is probably globally and the Nasdaq figures were domestic US and possibly a stricter criteria.

Do Good By Investing Well?

At the time in December 2019, there were over 160 ETFs based on MSCI ESG indexes. Had I been paying closer attention then, I would have seen that this may not be a passing fad.

In an interview with Investor's Business Daily, Lee referenced that giant $30-T amount as coming from the Global Sustainable Investment Alliance. Based on that research and MSCI projections, she said "The millennial generation could be putting between $15 and $20 trillion dollars into U.S.-domiciled ESG investments."

I assume she meant in their investing lifetimes. It's still staggering to think that the total AUM in ESG are approaching $40 trillion in this decade. Or even much faster, since a 2020 review by the Global Sustainable Investment Alliance showed that the "industry" just breached $35 trillion, "a growth of 15% in two years, and in total equating to 36% of all professionally managed assets across regions covered in this report."

$35 trillion and 36% of global assets? The world must certainly be on the fast-track to sustainability if all this money is pouring into companies doing good on the triple-bottom-line of profits, people, and planet, right?

Not So Fast FANGMAN

When I first heard it, I was confused. Last August, the Financial Times published a story titled "Funds branded ‘ESG’ are laden with technology stocks." And not just any tech stocks. The big ones.

Here was the lede from author Camilla Hodgson...

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Kevin Cook is a Senior Stock Strategist for Zacks Investment Research where he runs the TAZR Trader and more

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