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Why do Google and Microsoft make up most of my ESG portfolio?

Why do Google and Microsoft make up most of my ESG portfolio?

August 24, 2020
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According to the World Weather Attribution (WWA) project, the Siberian Arctic has been experiencing a heat wave. The average temperatures between January and June so far this year have been up 5 to 10 degrees Celsius (that’s 41 to 50 degrees Fahrenheit). On June 20th northeastern Siberia experienced their highest temperature ever recorded north of the Arctic circle- 38 degrees Celsius (that’s 100.4 degrees Fahrenheit).1 What’s worse is, this isn’t because of a fluke, it has been proven to be driven by greenhouse-gas emissions. The proof for this lies in an experiment that uses repeated simulations of climate with and without historical emissions. The experiment concluded with high confidence that the heatwave from January to June was 600 times more likely due to occur with anthropogenic climate change than it would have otherwise. In other words, the temperatures “would have been effectively impossible without climate change” states Andrew Ciavarella of Britain’s Met Office. 1

This, and many other climate-change based events, might be pushing you towards investing with an eye towards the environment. You’re definitely not alone.

I recently got a phone call from an investor who has been using what she thought were socially-screened funds. When asked what her top three concerns/issues were her comment was, “the environment, mainly. I’ve tried to invest environmentally-friendly but all I see are funds made up of Microsoft and Google.” She’s right- Microsoft and Google are often found in ESG (Environmental-Social-Governance) investments. Yet, why? It’s not like their brands are known for greening up the world, or working towards human justice, or any other great SRI-cause.

The reason isn’t based on what good they ARE doing, it’s more what bad they AREN’T doing.

Let me clarify here. There is a difference between ESG and SRI investing, though they are often mistakenly used interchangeably. ESG stands for Environmental-Social-Governance, which simply means the companies they invest in fit within the overarching ideas of pro- environment, social and corporate governance, but with more of an emphasis on its impact on the business’s success and profitability. Compare that to SRI investing.

SRI originally stood for Socially Responsible Investing but now also stands for Sustainable-Responsible-Impact investing. Both meanings are valid and therefore transposable. This type of investing invests in companies that fit within specific values like limiting carbon footprints, focus on alternative energies, transporting and providing clean water, promoting recycling efforts, and the like. In addition to investing in green or ethical ventures, it can also screen out certain criteria like the meat industry, nuclear or fossil fuels.

“In other words, the main distinction between these two types of investing is that one focuses on how environmental, social and governance factors affect the performance of a particular investment (ESG investing) while the other refers to not taking advantage of an investment opportunity based on a similar framework (SRI investing).”2 I see SRI as being a narrower niche within ESG.

You can now see how ESG investing can be slightly more lax than SRI investing. It gets the job done, I suppose you could say, but it may not be to the level you feel is most important. In that case, working with a professional in the industry, and one who has earned the CSRICTM designation3 like I have, is ideal so you can better sift through the marketplace and promote the causes you feel are most important. Especially if you’re passionate about the environment, and issues like the warming arctic, because investing in companies like Google and Microsoft won’t necessarily move the needle in the right direction, it just won’t be as influential about moving the needle backward, either. In essence, ESG investing won’t necessarily fulfill that need for activism, but I can help you find something that might.

If you’re interested in SRI investing and are curious about the different values you can promote with your investments, I encourage you to download the attached Values Checklist to see what is available. You might find yourself gravitating towards environmental issues, or another cause that you didn’t know was possible to invest in!

 

1 Arctic Climate - Siberia’s Heatwave Would Not Have Happened Without Climate Change. The Economist. 15 July 2020.

2 Cautero, Rachel. SRI vs. ESG:What’s the Difference?www.Finance.Yahoo.com. 31 Dec 2019.

3 Chartered Socially Responsible Investment Counselor designation. Offered through the College for Financial Planning.

 

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