On one hand, we are concerned that ESG is the new dot.com, the new buzzword everyone is using to make sales without any underlying reality. On the other hand, the SEC’s disgraceful proposals on corporate governance and willingness to be swayed by fake front groups funded by fossil fuel corporations make us skeptical of the legitimacy of this initiative.
The U.S. money management industry has experienced a boom in recent years of firms touting their commitment to green investing and buying the shares of socially-responsible companies.
Now, the Securities and Exchange Commission wants to know whether money managers are engaging in false advertising by saying funds are devoted to doing good when the reality is much murkier.
At issue are so called ESG funds, which stands for environmental, social and governance investing. Sustainable mutual and exchange-traded funds had $137.3 billion of assets under management at the end of 2019, according to data compiled by Morningstar Inc. While that total is less than 1% of the $20.7 trillion held in all U.S. mutual funds and ETFs, the space is growing fast, attracting an estimated $21.4 billion of new money last year.
In a Monday request for public comment, the SEC asked whether ESG products should have to follow existing rules that require a fund’s name to broadly match what it invests in. For instance, a fund that includes “stocks” in its name generally has to have at least 80% of its portfolio in equities.