‘Wild West’ of ESG Ripe for a Crackdown, Veteran Investor Says

ESG ‘Wild West’ Era Coming to an End, Veteran Investor Says

Update from Bloomberg…

There’s a veteran of ESG investing who can’t wait for tougher regulations to stamp out the false claims by fund managers in the $35 trillion industry he helped champion. Matt Patsky, who runs Trillium Asset Management, first started hunting for environmental, social and governance investments back in the 1990s, long before most money managers were even thinking about ESG. He now estimates that only a fraction of today’s ESG assets is bona fide sustainable investing.

Efforts by regulators to rein in money managers’ ESG claims are the “best thing to happen to the industry in years,” Patsky, whose Boston-based firm manages $4.8 billion, said in an interview. “It brings scrutiny to an area that’s become the wild west, where fund managers have discretion to slap ESG labels on anything.”

Patsky, who introduced the world’s first green-chip index of socially-responsible companies in 1994, estimates that of the $35 trillion that the Global Sustainable Investment Alliance says is parked in sustainable investments, less than $1 trillion is in “real” ESG. Of that, $500 billion is managed in Europe and as much as $300 billion is in the U.S., he said.

To be a credible socially responsible investor, Patsky says managers need to first be skeptical toward ESG-ratings data, which he claims is riddled with errors. Those issues make passive ESG investing impossible, he added.

His checklist for being a serious ESG investor includes pressuring corporate executives to change their companies’ behaviors, filing shareholder resolutions and voting on those filed by others.

Trillium’s comprehensive, fully integrated investment process incorporates a proprietary ESG rating method as well as a time-tested fundamental approach to identify attractive investment possibilities with competitive risk adjusted returns. They think that a company’s dedication to ESG principles provides a unique competitive advantage and long-term value.

Sustainable Investments

Sustainable investments are a growing trend among investors, but at the same time many view it as a riskier investment strategy. Sustainable investments aim to achieve financial returns while taking environmental and social factors into consideration. The main driving forces behind sustainable investing is an increasing desire for ethical (Corruption Perceptions Index) and environmental considerations in consumers’ spending and also increasing market volatility.

While sustainable investing can play a role in reducing risk, there are associated risks. The fund industry is still relatively new and undefined. Sustainable funds may be less liquid than other funds. Thus, assessing who is running sustainable funds and how they handle ethical concerns among staff members, governance processes for the fund managers’ investment decisions and ensuring that the fund’s portfolio is sufficiently diversified are crucial.

Social Investment Forum defines sustainable investment as “investment made with the intention of positive impact on the environment, society and economy.” Sustainable or responsible investing (SRI) is an investment strategy that prioritizes environmental, social, and corporate governance issues to create long-term value and competitive financial returns.

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