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There has been an explosion in the popularity of ESG or sustainable funds, but alongside the growth in sustainable investing came the rise of greenwashing. The unfortunate truth behind many ESG funds is that they do not truly prioritize environmental, social, or governance issues, rather their first goal is profit. Profit has long been the driving force behind investment decisions, and even in the case of ESG funds, their first priority is not ESG.
Currently, asset and fund managers are able to classify their funds as sustainable with minimal regulation. If the fund manager says that their fund pursues a specific sustainability theme or societal impact, then with almost no quantitative or qualitative proof, that fund can be deemed a sustainable fund. In fact, many large corporations featured in other major “non-sustainable funds” are the largest holdings of these so-called ESG funds.
Now, companies like Apple, Amazon, and Caterpillar have many procedures in place to offset carbon emissions and manufacture sustainably, so it is easy to build a case behind a fund featuring some of these massive companies. However, the United Nations has brought a flaw of these funds to the light, the lack of investment in emerging markets.
About 85% of all people live in emerging market countries, in many of these countries, people are subject to very poor living standards, and highly volatile governments and regulations. There are very few investment opportunities that offer the same level of societal and environmental impact that emerging markets do. By investing in the emerging markets, you can help to build that country’s economy, in time allowing for governments to stabilize, increase the standard of living, and afford environmental initiatives.
The solution to optimizing the sustainability of ESG funds, is to put sustainability first. It has been proven that truly impactful funds can generate as much, if not more, return on investment as traditional funds, however, the risk is much larger. If investors want to truly see an impact with their investments they may need to take greater risks, and demand transparency.
Physis Investment shows investors the true impact of their investments, from emissions produced to the percentage of women employed, Physis can help investors build truly impactful funds backed by real data. Our platform covers 10,000 companies and 355,000 funds including emerging markets.
Learn more about how Physis can help you here.