A massive academic review of sustainable investing research uncovered something concerning: recent studies show many funds labeled as "sustainable" or "ESG" actually contain companies with significant ESG controversies.
The research analyzed nearly 1,000 papers spanning 35 years and found that while sustainable investing exploded after 2015, the methods for screening companies remain surprisingly primitive. Most research relies on backward-looking data rather than predictive analysis, and there's virtually no use of modern technology to detect or prevent greenwashing.
This matters for individual investors because you might think you're investing ethically while inadvertently funding practices you oppose. The fund labels and ESG ratings we rely on appear to have significant blind spots.
The study suggests we're in the early stages of sustainable investing – like the dial-up era of ESG. The infrastructure for truly effective sustainable screening is still being built.
If you're investing in ESG funds, this research suggests doing additional due diligence beyond just trusting the label or rating. The field is evolving rapidly, but current methods may not be as reliable as they appear.
Link to Study – https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3960605
Your sustainable fund might not be what you think it is
byu/mohityadavx ininvesting
Posted by mohityadavx
2 Comments
ESG are just greenwashing themselves of course they aren’t going to try and combat greenwashing.
I always assumed these ETFs were just screening the worst-of-the-worst.
The real way to do this is pick highly ethical companies yourself, which is more work.