Do Your ESG ETFs Actually Have ESG Values?
In a recent post, we applauded investors for sinking $1.25 billion into the BlackRock U.S. Carbon Transition Readiness ETF. In response to our praise, Collin Daniels, Director of Regulatory Affairs with the Canadian Prosperity Pipeline Project (CP3), pointed out that although this is positive for ESG awareness and inclusion in investor thinking, some of these ESG-ETFs support oil and gas development in jurisdictions that have poor track records of maintaining even basic ESG values. In support of Mr. Daniel's claim, this article by the Financial Post identifies the composition of iShares ESG Aware MSCI USA ETF and the SPDR S&P 500 ESG ETF (EFIV) does include global oil and gas players as shareholders. This scenario exists because the MSCI ESG benchmarking methodology allows for mixing and matching. Using this methodology you can have one very poor performer offset by several organizations with strong ESG values and performance. There is also a lack of clarity as to why MSCI ETF screens oil sands development, but not oil and gas as a whole. ESSAFIN Logic recognizes that without real ESG experts to confirm these valuations, the financial sector is relying on benchmarks built on voluntary reporting mechanisms with limited sectoral coverage. Investors may not realize that the ESG values they wish to support are not being applied across all components of the ETF, the ESG rating is simply an average. We don't play favourites or bury the good in with the bad. We apply the full suite of environment, social and governance criteria to every company, project, or process. Our ESG evaluations are unbiased, grounded in science and first hand experience, and based on internationally recognized standards.