Fixing the problems with ESG investing

According to a 2022 poll from the Associated Press, although 93% of Americans acknowledge that human activity impacts climate, nearly half of Americans (47%) feel that their actions don’t have an impact on climate change. And yet, we know – it is the collective momentum of tiny particles of snow that drive an avalanche.

In our upcoming episode, Climate Now sits down with James Regulinski, co-founder of Carbon Collective, to discuss the role of investing - even among individual, “retail” investors - in determining the pace at which clean energy technologies can replace our global dependence on fossil fuels. We will discuss why investing in your retirement and investing in clean energy technologies can be well-aligned endeavors, why most environmental, social and governance (ESG) investment portfolios aren’t having the impact they should, and why even small investments can make a big difference in accelerating the path to decarbonization.

Carbon Collective Disclaimer regarding the use of MSCI data to develop ESG funds:

The claims Carbon Collectively repeatedly makes are: 

• MSCI explicitly states that their data should not be used to determine how good or ethical a company is, just as supplemental data to understand its exposure to risk from ESG-related issues. This means the use of the data as a measure of how ethical your portfolio is, is not supported by the data provider, even when it is sold as such. 
• MSCI (and other data providers) use data that is self-reported by the companies. This data is not standardized or verified by MSCI or anyone. The result is data that is noisy/inconsistent. When used to build funds, the fund design is inconsistent with scientific reports of the actions we need to take to address the E of ESG. For example, the IPCC report states that if we want to stay below 2 deg warming (which is already disastrously high), we can not invest any new money in fossil fuel exploration or reserve development. However, funds using MSCI data routinely have oil and gas companies. This is not MSCI's "fault," but it is an artifact of using that data. 
• When you use single-factor scores to judge a company, unrelated factors can "balance" each other out. So a high S score can balance a low E score. This can also lead to the inclusion of companies that are inconsistent with models of how we solve climate change. 

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