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Not so long ago, Wall Street had a particular obsession with ESG investing, which favors companies that promise to make certain strides on the environment, societal impact and corporate governance. Nearly every CEO of a major company touted their firm’s progress toward creating a more sustainable future.
Now the term is falling out of favor. S&P 500 companies citing “ESG” on earnings calls last quarter reached their lowest number since the same quarter in 2020, according to FactSet data.
Dedicated ESG funds have also lost popularity with investors.
Total assets under management in ESG funds fell by about $163.2 billion globally during the first quarter of 2023 from the year before, according to data provider Lipper.
ESG has become a dirty word on Fox News and among Republicans in Congress. What’s followed is a growing conservative backlash against corporate, social and environmental initiatives.
About half of US states are enacting provisions to block efforts to invest in state-run investment accounts with an ESG lens, Lipper found. A coalition of Republican-led states sued the Biden administration in January over rules that would allow 401(k) managers to consider climate change factors when selecting investments.
But even environmental advocates think the term has outlived its usefulness.
What’s happening: It’s time to throw the ESG name into the wastebasket, says Lynn Forester de Rothschild, founder of the Council for Inclusive Capitalism.
The term has become too politically charged and needs to be replaced with something more meaningful, she told CNN Business.
ESG “created the elements of its own demise,” says Rothschild, who regularly convenes global leaders like King Charles II, President Bill Clinton and Archbishop of Canterbury Justin Welby to discuss ways to make the global economy more inclusive and sustainable.
Efforts like Rothschild’s got businesses on board with embracing sustainability as an investment in their bottom lines — climate change poses an existential threat to many businesses across a large number of industries. But Wall Street focused more on green dollar signs than the green future.
“Investment companies, especially mutual funds and ETFs, are increasingly using terms such as ‘ESG’ and ‘sustainable’ in their fund names to attract hundreds of millions of dollars from investors even when there has been little or no change in the fund’s investment holdings — a practice known as ‘greenwashing,’ said Stephen Hall, legal director at Better Markets, a nonprofit that promotes public interest in financial markets.
Money managers have run with the term, added Rothschild and charge extra money for ESG investing “without doing the hard work” of determining how companies were actually changing their environmental footprints and instead using “meaningless checklists.”
Those checklists have allowed companies like tobacco giant Philip Morris and gas titan Shell to end up in ESG funds.
Acronyms tend to take on a life of their own, especially in the finance world, said Rothschild. “So I think this acronym, ESG, should go away.” Still, she added, the principles behind it are more important than ever. “We need to lose the term I believe, and double down on the objective,” she said.
ESG, said Robert Jenkins, head of global research at Lipper, is simply a buzzword at this point, the “artificial intelligence of six years ago.”There were companies built on selling ESG information, ESG-related conferences “and it got worn out,” he said.
What comes next: Regulatory agencies and governments need to reinforce environmental measurement requirements and objectives. “We need to regulate climate disclosure and create metrics that are verifiable and standardized, and available to investors and to consumers,” said Rothschild.
Others agree that rules and reporting need to be more closely regulated.
Current metrics are vague and don’t have specific measurement systems attached to them, Jenkins told CNN. He hopes that “more focused, thematic metrics can enable investors to target specific impact areas and have a better assurance that their money is actually going to benefit the desired outcome.”
JPMorgan Chase CEO Jamie Dimon issued a stark warning Monday to Wall Street: The Federal Reserve may be far from finished with its aggressive regimen of interest rate hikes in the fight against elevated inflation.
Most analysts say the central bank will raise interest rates just one more time, in November, by 0.25 percentage points from its current range of 5.25%-5.50%. However, Dimon told Bloomberg TV it’s possible the central bank will continue hiking rates by another 1.5 percentage points, to 7%.
That would be the highest federal funds rate since December 1990. In March 2022, when the current hiking regimen began, rates were at 0.25%-0.50%.
Dimon was doubling down on comments he made last week in an interview with the Times of India, when he said the world is not prepared for 7% rates.
It’s also a contrarian take. According to the latest Fed projections, officials forecast just one more interest rate hike this year — and rate cuts next year.
Still, Dimon, who leads the largest bank in the United States, says Americans need to be prepared for interest rates to surge.
When members of his board ask him whether interest rates could really go that high, his answer is always “yes,” he told Bloomberg.
Dimon added that he can’t predict the outcome of 7% interest rates on the economy: “We may have a soft landing, we may have a mild recession, we may have a harder recession,” he said.
A 7% rate could also dampen consumer spending and business investment and lead to a slowdown in economic growth.
There are a lot of “potential bad outcomes,” Dimon said, but the worst-case economic scenario would be stagflation, with low growth and high interest rates.
If that happens, he said, “you’re going to see a lot of people struggling.”
Microsoft CEO Satya Nadella warned Monday of a “nightmare” scenario for the internet if Google’s dominance in online search is allowed to continue, a situation, he said, that starts with searches on desktop and mobile but extends to the emerging battleground of artificial intelligence, reports my colleague Brian Fung.
Nadella testified on Monday as part of the US government’s sweeping antitrust trial against Google, now into its 14th day. He is the most senior tech executive yet to testify during the trial that focuses on the power of Google as the default search engine on mobile devices and browsers around the globe.
Taking the stand in a charcoal suit and tie, Nadella painted Google as a technology giant that has blocked off ways for consumers to access rival search engines. His testimony reflected the frustrations of a long-running rivalry between Microsoft and Google whose tensions have permeated the weeks-long trial. (Google didn’t immediately respond to a request for comment.)
Central to Google’s strategy has been its agreements with companies such as Apple that have made Google the default search engine for millions of internet users.
“You get up in the morning, you brush your teeth, you search on Google,” Nadella said.
The enormous amount of search data that is provided to Google through its default agreements can help Google train its AI models to be better than anyone else’s — threatening to give Google an unassailable advantage in generative AI that would further entrench its power, said Nadella.
“This is going to become even harder to compete in the AI age with someone who has that core… advantage,” he testified.
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