Are we seeing the death of ESG Investments in Ireland, before they even got off the ground? Or are we just seeing some teething problems? We explore what is happening across the globe and what options there are for people who really do want to put their money where their mouth is.

One thing is obvious to me; there is mass confusion and opacity when it comes to ESG Investing, across the world, never-mind Ireland.

I was fortunate to attend (and present) at FutureProof Wealth Festival last week in California. It was great to meet and hear from lots of really interesting advisors, thinkers, authors and investing professionals. What I really loved is that nobody was allowed to sell-their-wares on-stage. It was a meeting of minds, and not everyone agreed, which was refreshing!

One highly regarded and accomplished investor was speaking about future investment opportunities. He mentioned ESG. But said that it was yet another ‘fad’, that was solely used by the investment industry to market and sell products.

He also noted that it was going stale as a sales tool. He may or may not be correct on that conclusion, but it was an interesting take. At a separate stage at the ‘festival’, I heard a panel discuss how great the ESG opportunities are, and that investors can really have a positive impact with their investment decisions!

There are different views on ESG. Here’s how ESG investments in Ireland stands today…

Key Takeaways

• Irish companies are obliged to have an ESG ‘policy’
• Many of these ‘policies’ are greenwashing
• There are different ‘grades’ of ESG
• ESG should, in my view, be more about what we personally do, than how we invest.

ESG Investments in Ireland

As I explored in Blog 189, ESG Theory Vs. Practice, all companies are now obliged by Central Bank of Ireland, to reference and include a framework for how they incorporate aspects of ESG into their organisation.

At the very least, they are obliged to have an ESG ‘policy’ which is intended to outline ‘how they ESG’! The EU Sustainable Finance Disclosure Regulation (“SFDR”) requires they do so. So they do it!

And while they are at it, they splash ‘ESG’ all over their websites. This is done purely to attract investors that want to feel like their money is going to be invested in an environmental/humanitarian/socially conscious way. To show you just how green-washed a lot of the websites are, check this out!

One Irish insurance company over-night changed their website from ‘we manage nearly €40 billion of investors money’ to ‘we manage nearly €40 billion of responsibly managed assets’!! So, we are meant to believe that in the space of a few hours, this company managed to remove any potentially unethical or remotely non-ESG companies from their portfolios! How gullible do they think we are??

To confirm what ESG is all about, as one insurance company here puts it; ‘Sustainability factors mean environmental, social and employee matters, respect for human rights, anti-corruption and anti-bribery matters. All companies have impacts on sustainability factors, both good and bad. When investing our clients’ money, we consider the main or principal adverse impacts that companies that we invest in have on sustainability factors.’

So they ‘consider’ this stuff, but don’t actually need to do anything!

The extent to which most companies here appear to do all this, in my view, is to write and publish yet another useless ‘policy document’!

Companies now create ‘Responsible Investment Policies’ which outline how they apparently incorporate ‘ESG’ into their investments. Have a read of New Ireland’s one here. All credit to New Ireland, it is a very nice looking and neatly presented document!

However, in reality, such policies are largely just yet another policy, and don’t materially change anything about how companies do what they have always done, unfortunately.

We are led to believe that the ‘fund managers’ in these insurance companies are selecting and de-selecting certain companies from their funds, through the ESG lens. Really!? I’ve not seen a single case of that material change in funds in Ireland.

Voting Rights and ESG investments in Ireland

One of the key tenets of ESG is that shareholders/fund managers will proactively vote at AGMs. They would do so with a view to positively influencing the company’s actions on ESG-related topics.

One such example, and I’m really giving the benefit of the doubt here, was Legal & General choosing to vote against management of Amazon at this year’s Amazon AGM. They, and many other tiny shareholder investment firms, stated that these votes were ESG-motivated.

Perhaps they were, perhaps they were otherwise motivated. Either way, there were a total of 15 investor proposals made at the AGM, and all of them were voted down, apparently thanks in large part to Bezos’ influence!

As a holder of just over half of 1% of Amazon stock, one can understand how LGIM’s, and other insurance companies efforts were in vain.

ESG Fund Options Ireland:

How can an investor invest in a fund/product that is actually genuinely ESG in its approach? If you believe them, you’ll accept that purely based on them having a policy, all insurance-based investments in Ireland are now ESG in their approach.

But their portfolios are unchanged from 2 years ago – so what has actually changed or how are they more ESG? They largely aren’t. They simply now have quoted ESG ratings versus a meaningless bench-mark.

SDFR Classifications

To make it ‘easier’ for us as investors to determine what is really an ESG offering and what is not really an ESG offering, the SFDR introduces different ‘grades’ of ESG that a fund/product would sit under:

• Article 6 – All managed products / No integration of ESG / Can include tobacco, coal etc
• Article 8 – ‘Light Green’ funds / Promotes ESG (whatever that is meant to mean!)
• Article 9 – ‘Dark Green’ funds / Invests in economic activity that promotes ESG / Use ‘EU climate transition’ benchmark

To meet the SFDR requirement under Article 8 or 9, companies must disclose greenhouse gas emissions, waste, biodiversity and human rights records of the companies within their portfolios! Obviously, accessing the level of information required is no mean feat, if they want to provide an offering that is genuinely an Article 8 or 9 fund!

You can appreciate that this is all well-intentioned, but extremely challenging for investment managers to actually implement and report. Perhaps over time, the information required will be more readily available. Perhaps.

What about ESG-Labelled Irish Investment Funds?

It’s again really difficult for investors to find something trust-worthy that is labelled ESG. It is also difficult to find anything labelled ESG! See Zurich’s entire fund list here .

There is not a single mention of an ESG-specific fund. Incidentally, that link also contains all their Fund Product Key Investor Docs (KIIDs), where you can see in black and white, the extent of the fees on each investment fund here. The same can be said of most insurance companies in Ireland, ESG investments in Ireland are not easy to find.

Standard Life have an offering, for example, a global equity index that invests in only 30 to 60 global companies, and they avoid any company that produces weapons, tobacco etc. The fund is only active since 2018, but so far it has only delivered a total of 40%, versus the 64% a Vanguard Global Index has delivered in that same time frame.

If you had invested, say €500k in both in May 2018, you’d have €120k more in the Vanguard than you would in the Standard Life one right now. The Standard Life Global Equity Impact fund fee alone is over 1%. For what exactly, I don’t know.

Even if something isn’t labelled ‘ESG’, the assumption is that they now apply ESG ‘factors’ to their existing funds, and that should be good enough for most of us. But if you do want an ‘ESG-labelled’ fund, you can get one.

For example, via our platform, there are many independent fund managers that have labelled/marketed their funds as ESG. Given the fact that it seems to be done mostly for marketing purposes as opposed to tangible ESG impact, I’m yet to be convinced personally. In addition, the fund fees tend to be higher, and the track record much much shorter.

ESG at UN-Level

There is the ‘United Nations Principles for Responsible Investment’ (UNPRI), which sounds promising.

Members, who are generally large fund managers and insurance companies, sign-up to abide by 6 key principles:

• 1: We will incorporate ESG issues into investment analysis and decision-making processes.
• 2: We will be active owners and incorporate ESG issues into our ownership policies and practices.
• 3: We will seek appropriate disclosure on ESG issues by the entities in which we invest.
• 4: We will promote acceptance and implementation of the Principles within the investment industry.
• 5: We will work together to enhance our effectiveness in implementing the Principles.
• 6: We will each report on our activities and progress towards implementing the Principles.

Again, sounds very positive and impactful, but I’ve yet to hear of any material impact or output. Perhaps in time, we’ll see some practical action from this group.

Anti-ESG Funds?!

While at that conference last week, I met two different people who had started their own themed ETFs (as you do!). Both have big ambitions for growth and both take interesting approaches. One actually has an ETF that aims to invest in c100 of the companies listed on the Russell 1000, based on the leadership abilities of the CEO!

Again, just as ESG funds must, getting the data on this ‘Leadership ETF’ is less than straightforward, yet critical to it delivering on its promise!

If we are wondering about ESG investments in Ireland, what about ESG in other countries!? The state of Florida has recently barred its pension funds (all 186Bn of it) from embedding ESG into its investment strategies!

Amazing development, implemented by Ron DeSantis’ administration. Read about that here. Another example was Texas criticising BlackRock and other fund managers for ‘boycotting’ the fossil fuel industry as part of their ESG agenda. It seems there is a large (if not mostly Republican!?) contingent that has an issue with ESG and the ‘narrative’ that’s going around!?

Is the tide turning against ESG? Is it only a luxury we (the investing public) want to afford when energy prices and inflation are low? Or is it something we’ll adopt massively only when the economy is buoyant and the outlook optimistic? Who knows!

As a fiduciary advisor, my role is to ensure that people are invested in line with their plans, invested in things that deliver value for money, and offer full possibility for growth. Right now, ‘ESG’ in general, is not ticking the required boxes. I look forward to the day where ‘it’ hopefully will.

Putting Your Money Where Your ESG-Mouth Is:

You’d have had to have had your head buried in the sand over the past week not to have heard, but the founder of Patagonia just took action that will hopefully be a shining example to other founders/philanthropists around the world.

Incredible generosity on his part, and indeed on the part of his two children, who seemingly fully supported the decision. Read this interesting short article here about the generous trio.

Ultimately, I feel that act sums it up really – ESG should, in my view, be more about what we personally do, than how we invest. Living, behaving and consuming in a more ESG manner could likely have as large, if not a larger impact, than how we invest.

If you want to invest in ESG funds Ireland, in other words, ‘ESG labelled’ funds, then by all means, proceed. But be realistic about what exactly that is investing in, and the impact it will likely have.

Likewise, if you want to continue to invest in the more proven and established approach of pure Index funds, fire ahead also. That’s certainly what I’ll continue to do until such time as there is a proven and reliable means to achieve both ESG support, and full growth and diversification at a fair price.

I hope this helps give some more clarity on ESG Investments in Ireland.

Paddy.