Oil, Gas, & Timber companies are in your green and ESG ETFs! What the Frack?
To all investors interested in making socially responsible investments, I have 2 words for you: Caveat Emptor. From latin, the phrase means buyer beware and is fitting in this case. The ESG investing trend is powerful and it can make a huge impact on the world in the coming decades. Investors wishing to make their voices heard now have many choices, but most ETFs devoted to these themes have holdings that would make their investors very unhappy. A look under the hood reveals that of the dozens of “Social” ETFs on the market, we find that there is as much as 4% invested in traditional energy companies. When you consider that the S&P 500 has a 5.4% weighting to energy, this is hardly an improvement.
In the case of Vanguard’s green ETF, an SEC commisioner issued a statement saying, ”I feel investors are being misled- and I think it’s a sign of the times where we all get fired up about stuff without really thinking about what’s behind it”. As it turns out, the Vanguard fund in question had several Oil & Gas holdings including companies involved in one or more aspects of fracking.
While this seems unimagineable, part of the problem lies in the definition of these terms. An ESG fund will have different criteria than a “green” fund or a clean energy fund. Recent fund offerings focus on companies led by women and those that treat people with disabilities fairly. While this adds to the choices available, it has left many investors in a quandry. By selecting different ETFs to accomplish certain ESG goals, the may be unwittingly investing in companies that they wish to avoid. The issues are complex and the array of funds are ever expanding. So what is an investor to do? Talk to an advisor who understands the issues and choices, and can craft a portfolio that aligns your investments with your values. At Stonebrook, we have been working with investors for 2 decades- helping them to align their portfolios with their values.