Any time the stock market falls, investors are likely to rethink nearly everything.
The current gut check comes at a point in the evolution of the investing industry when assets in so-called E.S.G. funds have risen 38 percent in the past year, to $2.7 trillion by the end of March, according to Morningstar Direct. Professionals overlay all manner of rules and screens for the investments they pick, using climate, diversity or other data to construct what are now over 6,000 funds worldwide.
There is a cost for consciousness: The funds often have high fees that can reduce returns if the investments don’t do better than whatever alternatives you reject. And there’s a fair bit of confusion about what the term E.S.G. — short for environmental, social and governance — means in practice.
That can lead to episodes like one last month when Elon Musk called the entire industry a “scam,” after S&P Global had the temerity to remove Tesla from an E.S.G. index. S&P did this, it said, in part because of accusations of racial discrimination and other worker mistreatment.
Meanwhile, the Securities and Exchange Commission is frantically trying to catch up, investigating Goldman Sachs and other big banks and questioning whether some are slapping E.S.G. labels on funds that may not deserve them to make a grab for investor assets.
To try to help everyday investors make sense of this, I turned to two professionals who have spent a fair bit of time vetting wannabe E.S.G. investments.
The…
