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Alternative Market Briefing

Other Voices: Are all ESG Indexes as green as you want them to be?

Friday, February 21, 2020

From Beyond Investing:

When Laurence Fink, chief executive of BlackRock, with nearly US$7 trillion under management, vows to put sustainability at the core of the firm's new investment approach, markets and investors sit up and listen.

But a swift analysis of the current lexicon used in so-called 'climate-friendly' investments is at best evasive, at worst simply greenwashing.

Without naming names, let's briefly analyse a few of the biggest environmental, social and governance (ESG) and fossil fuel free indexes.

One leading index adjusts its composition to avoid companies that are "fossil fuel free", which is defined as companies that do not own fossil fuel reserves. The immediate issue here is that while these companies might not 'own' fossil fuel reserves, they can clearly be allowed in the index even if they are dealing in energy. So, while oil companies might be excluded, electric utility companies, as an example, can be included, as technically they do not hold reserves.

Another index is described as being composed of 250 companies with high ESG factor scores as calculated by a leading US-headquartered multi-asset portfolio analysis firm.

This firm's ESG calculations are not based on immediate, obvious environmental footprints, but rather a set of broad questions which analyse what the most significant ESG risks - and opportunities - face a comp......................

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