So what is meant by ESG investing? Well, as a matter of fact, that’s a really good question.
The short answer is that ESG stands for environmental, social, and governance. It is laudable to invest in a way that is intended to encourage positive social change.
But, like many things in life, ESG investing isn’t always quite so simple.
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What got me thinking about this topic was when I attended an investment conference and we took a look at a “Low Carbon” exchange traded fund. Indeed, that was the name of it: “Low Carbon.” As it turns out, one of the investments inside the “low carbon” exchange traded fund was Shell, an oil and gas company.
Believe it or not, including Shell in a low carbon ETF is a very defendable decision. Shell does a lot of work in natural gas, and natural gas is a green decision when you compare it to alternatives, especially coal.
Still, I fully expect that a lot of people that would be attracted to a “low carbon” ETF would be surprised and disappointed to find that they actually owned Shell stock. And 12 other oil and gas companies.
And, for what it’s worth, a couple of cigarette manufacturers and a big agricultural chemical company.
ESG investing is a newer term, but it is not a new concept. Previously these types of products were more commonly referred to as “socially responsible” investing. While they have been around for decades in one form or another, they haven’t really gained the traction that some people feel they should have.
Historically the biggest concern has been product performance. While supporters will claim that ESG investing should not lag other investment options, there have been performance issues with at least some ESG products. If nothing else at least the perception of lagging performance is probably the main reason why ESG investing has not seen more uptake. It’s probably fair to say the jury is still out on whether ESG investing does not have to come at the sacrifice of performance.
But performance is not the only question mark. When you have oil and gas companies in “low carbon” portfolios, how do you even define ESG? Clearly it takes more than a superficial labelling.
One of the holdings in an ESG fund that I looked at is Berkshire Hathaway. To me, it is totally unsurprising to find Berkshire Hathaway in an ESG fund. It is a very well-respected firm that has acted admirably.
Yet I remember Berkshire Hathaway annual meeting I attended years ago, and there were a handful of protestors that were not in favour of a hydroelectric project that a Berkshire subsidiary was associated with. I think the strong consensus was the protest was unfounded, but for those few people I would expect that an investment in Berkshire would not be welcome.
When you really dig into an ESG portfolio, the issue eventually becomes we live in a world where everything is connected to everything. So while it is easy enough to screen out an arms manufacturer, do you also screen out the bank that they work with? Even if that same bank also works with other customers that do great things? Inevitability there will be some subjectivity involved.
The bottom line is that there are many nuances to ESG investing. I think a wise approach is to define what it is that the investor is looking for before jumping in. If someone wants a strict adherence to no fossil fuels then that “low carbon” ETF that holds oil and gas companies will be unacceptable, but it could be perfectly fine for an investor that defines making a difference in some other way.
Brad Brain is a Portfolio Manager with Aligned Capital Partners Incorporated (ACPI). ACPI is regulated by the Investment Industry Regulatory Organization of Canada (www.iiroc.ca) and a Member of the Canadian Investor Protection Fund (www.cipf.ca). This publication is for informational purposes only and shall not be construed to constitute any form of investment advice. The views expressed are those of the author and may not necessarily be those of ACPI. Content is prepared for general circulation and has been prepared without regard to the individual financial circumstances and objectives of persons who receive it.
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
