To The Moon

When I came across the above article, I sat up quickly, click on it and savour the article in one sitting.

When the world’s largest assets manager, $BlackRock(BLK)$ CEO, Mr Larry Finks said something so “profound”, we need to pay close attention especially when distilled to its essence, it is about money & investments.

My usual prelude before deep diving into the main content.

What is Environmental, Social & corporate Governance (ESG)?

• It is an approach to investing that recommends taking (a) environmental issues, (b) social issues and (c) governance issues into account when deciding which companies to invest in.

• It has become increasingly important for companies and investors, as it can affect their reputation, performance and profitability.

ESG - Difference For A Company Versus An ETF.

In Singapore, the government in its zeal to become #1 compliant has been “encouraging” companies to adopt the latest best practices.

On Mon, 26 Jun 2023, JTC has unveiled a web-based embodied carbon calculator.

The “aim” is to help developers better assess construction emissions and nudge them to source for greener materials, as well as manufacturers.

It is a fact that “carbon accounting” is an important component of ESG reporting, as it provides investors with a quantitative measure of a company's impact on the environment.

For A Company:

For a company that endeavours to implement ESG principles, has to integrate them into its core business strategy, operations and culture.

This means a company has to:

• Identify its material ESG issues.

• Set goals and targets.

• Measure and report its progress,

• Engage its stakeholders.

The company also has to ensure that its ESG practices:

• Are aligned with its values, vision and mission.

• Create value for its shareholders, customers, employees and society.

For An ESG Fund / ETF:

It is a type of investment product that selects and weights its portfolio based on ESG criteria.

This means the Fund / ETF has to apply a screening process to exclude or include companies based on their (i) ESG performance, (ii) ratings or standards.

The Fund or ETF also has to monitor & disclose its ESG exposure, risk and impact, and align its investment objectives with the expectations of its investors.

The fund or ETF also has to consider the trade-offs between ESG factors and financial returns, and balance them accordingly.

What I See

My Thoughts On Mr Fink’s Interview:

• Referring to above 2 definitions about ESG, Mr Fink’s views is about the latter classification.

• CEO Larry Fink said he was "ashamed" of the ESG debate.

• He will avoid using the term ESG because it had been "weaponized" by US Republicans & Democrats.

• He clarified that it was not meant to be political statements, but to identify long-term issues for investors.

Does the comment imply BlackRock might be reconsidering its approach to ESG? Does it also mean that it might not be as committed as before?

• With such public declaration (coupled with Blackrock’s influence), it could have a ripple effect on the (a) performance and (b) popularity of ETFs that are ESG slanted.

• Especially those managed by BlackRock or influenced by its policies.

• It remains unclear if Mr Fink's comments reflect a change in BlackRock's strategy?

• Or it is only a public “ranting” to backlashes he encountered from both Republican and Democrats, for championing ESG?

Afterall, he mentioned that he still believes in "conscientious capitalism" and he is trying to address the misconceptions about his company's ESG policies.

Therefore, it may not be wise to conclude that ESG investing is no longer viable or profitable based on Mr Larry Fink's remarks alone.

Other influences

Taking a step back, other factors that could affect the performance and attractiveness of ESG Funds / ETFs:

• Market conditions.

• Consumer preferences.

• Regulatory changes.

• Social movements.

• Technological innovations.

• Environmental challenges.

Although ESG has its roots germinating way back in the 80s by the United Nation, it never gained traction until the 2004 report (a joint initiative of financial institutions at the invitation of UN) “Who Cares Wins”, where the abbreviation “ESG” was popularly quoted & referenced.

Sufficed to say ESG investment is still in its “infancy” stage?

Will this baby blooms into a “responsible” adult, it’s still anyone’s guess.

Having said that, with US dragging its feet when it comes to climate change implementation and now ESG, politicized by both parties - do investors in US domiciled Funds / ETFs need to be “wary”?

Below are some existing Funds / ETFs: (am pretty certain, there should be more….)

• $iShares MSCI USA ESG Optimized ETF(ESGU)$.

• $Vanguard ESG International Stock ETF(VSGX)$.

• $SPDR S&P 500 ESG ETF(EFIV)$.

These funds and ETFs could be affected by Mr Fink's comments in different ways, depending on

• Their exposure to BlackRock's products or policies.

• Their sensitivity to market sentiment & investor demand.

For those already vested, watch them closely.

For those who are thinking, prudent to take your time?

• Do you think you will be interested in investing in ESG related Funds or ETFs?

• Do you think investors have a “moral” obligation to do the “right thing” when it comes to parking our monies in equities, funds and ETFs?

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