The problem with ESG investing, in one chart – Quartz

That’s according to an analysis by Jordan Waldrep, chief investment officer of Illinois-based TrueMark Investments. Using emissions data disclosed by companies, Waldrep calculated the carbon intensity–measured as CO2 emissions per $1 million in revenue–of companies held by several popular ESG ETFs. By averaging these data across each ETF, he was able to compare them, with the S&P 500 acting as a benchmark. The funds Waldrep analyzed were less carbon-intense than the S&P, largely because they exclude most major oil and gas companies. But many ESG ETFs were still more carbon-intense than a hypothetical fund that precisely tracked the S&P but excluded the five dirtiest companies in each sector. As Waldrep put it, “That says they’re not really trying.”

A key problem is that portfolio managers, even of ESG funds, typically assign very little weight to a company’s climate performance, according to a comprehensive analysis (pdf) in August by economists at EDHEC Business School in France. The analysts found that market cap is still by far the most important factor in whether a company is included in a fund, and at what volume. Other “ESG” issues like equitable pay for female employees also tend to outrank climate considerations. The upshot, the report said, is that any climate-labeled fund not using climate data for at least half of its stock weighting determinations “should be considered to be at a significant risk of greenwashing.”