‘Woke capitalism’: ESG investing is starting to become its own source of risk
. The pitch often sounds convincing: If you invest in these funds, made up of companies that claim to be ethically exceptional, you will do well and do good at the same time.
Among them, the falsifying of credentials, called greenwashing. Many component companies in ESG funds have been exposed for lying about the ethical accomplishments that earned them their places. A year ago, Morningstar stripped 1,200 companies worth US$1-trillion of their sustainable status for misrepresenting their ethical hygiene and revealing that they were, in fact, less clean than many companies not considered worthy of ESG status. Experts suspect greenwashing goes even deeper than this.
The backlash against ESGs in the U.S. has been swift and sharp. More than a dozen U.S. states have pulled funding, including pension and retirement money, from ESG funds and launched investigations into the practice. BlackRock, the world’s largest money manager, said Republican-led legislatures pulled more than US$4-billion from ESG-related asset management accounts last year.
That risk is reflected in a sharp decline in inflows, which in 2022 dropped 70 per cent over the previous year, and there was a 60 per cent drop in the number of new funds, according to Morningstar
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