MORE AND MORE investors are using environmental, social and governance (ESG) criteria to direct their investment dollars toward companies fighting climate change. An obvious question: Do companies that deliver “green” innovations earn high ESG scores?
It seems not. The authors of a recent study from the European Corporate Governance Institute found that:
Out of the top 50 green patent producers, 14% are energy firms typically excluded from ESG funds. These firms include Exxon Mobil, Royal Dutch Shell, BP, ConocoPhillips and Chevron, which produced 6,969 green patents as of 2017. Despite this, energy firms receive much lower ESG scores, minimizing or eliminating their representation in portfolios driven by ESG factors.
That brings us to a second obvious question: If the idea of ESG investing is to reward those companies that are striving to arrest or reverse climate change, how much progress will we make if we minimize investments in those companies coming up with the most innovative ideas?