Failure to Impact: Are ESG Funds Delivering on Investors’ Ambitions?

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A guiding motivation of most ESG investors is for their assets to have a positive influence on climate change. There’s only one problem: Passive ESG funds don’t allocate to the companies that will have any real influence. 

In this paper, we examine why passive ESG strategies that de-risk and divest from carbon intensive businesses are unlikely to produce the environmental changes their end investors desire. Instead, we posit that investors who want to meaningfully lower the world’s carbon footprint must selectively allocate capital to carbon intensive businesses, for these companies lie at the forefront of the transition.

As part of the paper, we explore:

Failure to Impact: Are ESG Funds Delivering On Investors Ambitions?

  • The typical makeup of a passive ESG vehicle, and why its structure misses the mark when it comes to affecting environmental change.
  • The problems associated with relying on backward-looking ESG scores to allocate capital.
  • A data-driven look at the amount of raw materials carbon intensive industries will have to produce to enable renewable technologies to proliferate.
  • Why allocating capital to carbon intensive businesses – but allocating selectively – may serve as a better construct for rebuilding the world in a carbon-lite manner.

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