The result is that even the most vociferous ESG backers are taking on more energy exposure. According to Financial Advisor, Rockefeller Capital Management, a company that takes great pride in its ESG investing record, which its $10.4-billion asset management division pursues, now gas a 6% energy weighting in its $19 billion equity portfolio, compared to the S&P 500’s 4.8%
Professor Shivaram Rajgopal at Columbia Business School claims that fund managers who underweighted energy and underperformed the indices have come under intense pressure in recent years to increase their exposure to the sector, which has excelled. “ESG funds pay a higher expense ratio. If you start showing a negative tracking error because you don’t hold energy, you’re going to close down the fund at some point,” he said.
There are also calls for a better definition due to the ambiguity around what an equity portfolio with an ESG or sustainability focus should look like.
“I think that our industry is going through a time where the consumers of these products could benefit from additional clarification,” Parnassus Investments chief marketing officer Joe Sinha said about what investors expect to find in an ESG fund. The Parnassus Core Equity Fund, on the other hand, does not hold any oil and gas producers, which according to Sinha is equivalent to having oil reserves.
Rockefeller Asset Management’s president and chief investment officer predicts that despite Big Oil’s recent big market performance, more money will go into sustainable investing in the long run due to a “multi-decade, secular trend driven by increased evidence of risk and return benefits, an emerging generation of investors’ preference for sustainability, and regulation that provides clarity and minimizes greenwashing.”