Bloomberg Businessweek published a report this week outlining the problem with ESG investing. It’s a lengthy analysis with lots of facts and figures, so I thought it would be worthwhile to summarize its major findings.
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Meet MSCI: the ESG matchmaker
MSCI is the world’s premier ratings company for environmental, social and governance (ESG) designations. It’s the ESG equivalent of Moody’s for insurance ratings.
MSCI has become the de-facto standard for smacking “sustainable” on any investment fund. The impact of sustainable investing has suffered as a result.
What’s the problem with MSCI ESG ratings?
According to Bloomberg’s report, MSCI ratings don’t accurately measure the impact of a company on the Earth. Rather, their ratings measure the impact of the Earth on a company.
It’s a powerful distinction that has damning effects on the real-world impact of ESG ratings. And it’s a method that MSCI openly boasts as a logical indication for relevant stakeholders.… Read the rest
The scoop: You can’t improve what you can’t measure. An organization must accurately measure GHG emissions and carbon footprint to improve its environmental sustainability outlook.
Here’s an interesting set of stats:
99% of F500 companies report being “sustainability-conscious” or mention it as a priority in their goal statements.
A little over 60% made commitments to reduce emissions with varying degrees of comprehensiveness. A common goal is to reach carbon neutrality by 2050, yet most companies don’t have decarbonization roadmaps or intermediary reduction targets.
And less than 15% set long-term and short-term reduction targets in line with corporate standards derived from the latest climate science.
These numbers tell a straightforward story. Sustainability gets a lot of lip service, but most businesses haven’t invested time and money into this objective. Creating a carbon footprint baseline is a high-impact first step in any organization’s sustainability journey, and this exercise achieves diverse goals within profitability and risk management.
Emissions accounting terminology may seem complex, but by the end of this article, we’ll find that the foundations of GHG emissions accounting are relatively intuitive. It’s just a matter of breaking up different impact areas of an organization into smaller, digestible bites.
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The scoop: New construction needs to prioritize sustainable practices to prevent an energy crisis in the future. Real estate investors are starting to take notice.
Facts and figures:
- The World Economic Forum reports that over 37% of global emissions in 2020 came from buildings. And not just new construction: 69% of those emissions stemmed from operating existing buildings.
- Investment in the energy efficiency of buildings continues to climb. It reached more than $180 billion in 2020, up 11% from the previous year.
- New sustainable buildings alone will present a $24.7 trillion investment opportunity in emerging markets by 2030.
Bottom line: Investors are and will always be driven by returns. But the private sector is starting to realize the necessary risk assessment and tax burdens associated with energy-sucking real estate. Green building is the future.
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What to know Sustainable investing allows you to implement your core values while increasing your profits. ETFs, Index Funds, and Roboadvisors are a good place to start.
Four main approaches
- Exclusionary screening - avoiding investment in companies or sectors that do not align with investor values.
- ESG integration - rating companies based on their implementation of Environmental, Social and Governance principles.
- Thematic investing - focusing investments according to interest in specific themes, for example clean energy.
- Impact investing - investing in companies or funds with the intention of generating impact alongside a financial return.
Bottom line -- Sustainable investing not only offers you a way to invest according to your values, but it also provides good financial performance and potential risk mitigation.
Dig deeper —> 5 min