We’re very excited to have David Fredrickson – Corp Fin’s Chief Counsel – joining our other esteemed panelists on our webcast tomorrow: “Shareholder Proposals – What Now?” So tune in to hear David – along with Davis Polk’s Ning Chiu, Morrison & Foerster’s Marty Dunn and Gibson Dunn’s Beth Ising – discuss Corp Fin’s new approach for processing shareholder proposal no-action requests, what’s new due to Staff Legal Bulletin 14K and the potential impact of the SEC’s new 14a-8 rulemaking proposal. Don’t miss it!
“ESG” Funds: What’s in a Name?
Regular readers of this blog know that we write more than we want to about the rise of “responsible investing” – e.g. just yesterday. It’s not that we’re opposed to the trend, we just question how meaningful it is. Incidentally, that’s also what’s frustrating people who want it to grow faster.
But here’s the deal: investors want to feel good – but in the end, they also want their returns to match what they’d get by tracking a broad market index. The funds that meet those dual desires end up attracting the most cash, even though some of the “cleaner” funds have significantly outperformed the competition in recent years. This is America! It’s all about marketing.
That’s why, as this WSJ article points out, it’s pretty common for “sustainable funds” to invest in fossil fuel companies (the tagline of the article is that “8 of the 10 biggest US sustainable funds invest in oil & gas companies”). And if that still seems odd to you, the reconciling point is that they invest in the companies with the highest ESG ratings in their sectors – the “most sustainable” fossil fuel companies, if you will.
So when it comes to attracting ESG dollars, the key appears to be outperforming your industry peers – or producing the most information, as Doug Chia suggests. And the Journal explains why that’s unlikely to change any time soon:
Energy shares have often been among the few sectors to reliably produce gains—making them an important group for asset managers. That is especially true for asset managers whose products are aimed in part at institutional investors, which often have less room to miss their target returns. Also, an oil company that scores poorly on one element of ESG—say, the “E”—might do well on the other two elements, meriting its inclusion in a fund.
Transcript: “Sustainability Reporting – Small & Mid-Cap Perspectives”
We’ve posted the transcript for our recent webcast: “Sustainability Reporting – Small & Mid-Cap Perspectives.”
– Liz Dunshee