The emerging risks of ESG investing and our awesome responsibility
American investors, the world’s wealthiest, have an awesome responsibility to promote our values throughout the world by being diligent in how we invest. ESG investments take on an emerging reality as investors continue to flock toward investments solely based on performance and expected return. These investments have included technology companies, namely, Facebook, Amazon, and the like, as wells as the less obvious sovereign debt of totalitarian governments, like Belarus.
First, as an investor, you should carefully weigh the risks of investing and determine if and when you’ll need your money back. Assuming that you’re financial plan is in place, you may have the freedom to choose how to invest your money, and how your values should be taken into account. Socially responsible investors were largely spared from the losses associated with oil & gas, as they were not necessarily invested in them in the first place. Other indexes, like technology, soared this year and these same investors reaped the benefits (the Nasdaq 100 risen 28% this year compared to the S&P 500 of 4%).
Most ESG-branded mutual funds are significantly overweight in tech. FANG stocks (Facebook, Amazon, Netflix, and Google) were the top holdings in the Vanguard Social Index fund. ^1 Facebook is charged with collecting user data and Apple, with their unsuitable working conditions in China, make them, among many others, a challenge to their ESG status.
Bond markets, which are at least twice as massive as the stock market, are less likely to be screened for ESG. Eurobonds, which raise money for governments in Europe, its issuance also raised $1.25 billion for Belarus in 2020. ^2 Belarusians are currently gathering in massive protests in a challenge to the two-decade-long dictatorship of Alexander Lukashenko. During this period, Belarusian bond yields jumped to 7.4% as Europe is expected to start sanctions. Moscow is likely to provide financial support in defiance.
Defining our values is the first step to implementing an ESG portfolio. Technology companies with its enormous financial buildup, data collection, and influence in global politics, might be the new “oil & gas” for investors. It’s also important to acknowledge the risks of being overexposed to the tech sector, which hasn’t seen a significant draw-down since 2008. Totalitarian governments do not deserve our money. Yet, their investments, often very profitable, continues to draw financial support from the wealthiest investors, namely Americans.
At Eureka Wealth Management, I’ll help you define your risk tolerance, time horizon, and investment values and construct a portfolio that meets your criteria. I also do retirement planning, insurance, and tax & estate strategies. Call for a free, initial consultation at (760) 537-0791 or book online at eurekawealthmanagement.com.
^1 FT 8/16/2020 “ESG-Branded Funds Under Fire for Tech Stock Overdose”
^3 FT 8/16/2020 “Belarus bonds dumped as police crackdown fuels calls for EU sanctions”