Sustainable Investing in the United States

Cary Krosinsky

doi:10.26354/bb.4.4.93.2023

Published: 2024-02-19

Vol. 93 No. 4 (2023)

Sustainable Investing in the United States

Cary Krosinsky

Section: Problems and Opinions

https://doi.org/10.26354/bb.4.4.93.2023

Abstract

The aim of the paper is to assess the performance of active sustainable investing in the U.S. particularly in the context of the rising anti-ESG movement. The paper presents the author's concept: The Seven Tribes of Sustainable Investing, which include: 1) negative screening, 2) positive/best in class, 3) impact, 4) thematic, 5) ESG integration, 6) shareholder engagement and 7) minimum standards, which have differing financial outcomes and impacts. The development and the roots of the anti-ESG movement are also synthesized. An analysis of the returns of 10 sustainable funds shows that none of these funds significantly underperformed their benchmarks over a 10-year period. These results provide a counter-argument to the proponents of the anti-ESG movement and, in particular, contradict the claims that sustainable investments do not fulfill their fiduciary duty. Therefore, the conclusion emphasizes the validity of promoting and pursuing the ESG concept against its opponents, in the U.S. and beyond.

[1] In 2019, for example, Morgan Stanley found that 95% of millennials had interest in sustainable investing [Morgan Stanley 2019]. In 2020, three out of four sustainable funds identified by Morningstar (investment research firm that compiles and analyzes fund, stock, and general market data) financially outperformed their category [Hale 2021]. In 2021, a majority of investors in ExxonMobil (U.S.-based oil and gas company) voted to change board members and elected at least two board candidates nominated by activist investors who pledged to steer the company toward cleaner energy and away from oil and gas. The key to making this happen was Blackrock joining a majority of financial institutions in the so-called Climate Action 100+ which features investors managing over US$68 Trillion to pass the related shareholder resolution [Climate Action 100+ 2021].

[2] As COVID’s first major waves led many to work from home in 2020 into 2021, the price of a barrel of oil was briefly negative. In early 2021, as these trends continued, oil companies in Houston wondered what to do with their many thousands of engineers as long term investment projects no longer seemed financially viable let alone expected impacts with climate reality gave further pause to future activity and positioning, yet this all changed with the early 2022 invasion of the Ukraine by Russia, partnered with the rise of supply chain shortages leading to higher prices (especially oil and gas) and inflation.