Researchers find little evidence that investment managers help the companies they invest in become greener.  Much of what passes as ESG (environmental, social, governance) investment is little more than investment managers’ telling clients their portfolios are green.  “There could be a couple of bad apples in Europe, but it’s not the entire cart that’s rotten”, as in the U.S., says London Business School finance professor Alex Edmans.

ESG in practice can amount to a pile of marketing, i.e. telling investors their money is green.  Numerous studies show companies’ ESG scores are notoriously difficult to pin down, especially when trying to measure smaller companies, due to smaller companies’ reduced public oversight and fewer resources to devote to their investor relations.

“In the U.S., we observe a substantial disconnect between what institutional investors claim to do in terms of ESG and what they really do. We do not find better portfolio ESG scores for US PRI (Principles for Responsible Investment) signatories, not even for those that report full ESG incorporation…. We also find no evidence that US PRI signatories improve the ESG scores of portfolio companies after investing in them”,  according to the research paper “Do Responsible Investors Invest Responsibly?” in Review of Finance, November 2022.

In Sweden, environmentally oriented investors are more likely to buy mutual funds with pro-environmental names, but they are not more likely to buy funds that are labeled as ESG-compliant as written in the more complex financial statements that households receive every year.
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ESG investors beware.  The name ESG or “sustainable” might be there only to draw you in.

Since its all-time peak on the first day of the year, the stock market has fallen, in waves, likewise for bonds.
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Where have we read this before?  Right, in our last letter.

Significant dislocations and mis-pricings of investments play out as governments and central banks attempt with varying degrees of success to address imbalances and problems amidst supply and demand dislocations.
In a few words, investors aren’t happy when good times end.

Over the first nine months of the year, the U.S. stock market benchmark declined -24.6% and the bond benchmark index dropped –14.6%.

I can’t say when it’ll get better.  It looks to me like an unwinding of a super-charged economy and speculative investment price excesses.

Correcting these imbalances will require time and uncomfortable declines in market prices.  Governments and central banks will, under such pressures, be tempted to lean against the tolls required to set things right.

Rising to meet the challenges, negotiations among interests will be where it’ll get interesting indeed.