Premium: Money managers’ ESG cash cow gets a reality check – but too late for clients

My relationship with money manager Piet Viljoen goes back to the 1980s when I started interviewing him on his consistent outperformance. In subsequent years I've come to appreciate that it lies in Viljoen's rational approach, both professionally and personally. .Recent developments reinforce how the Capetonian's worldview – including the rare ability to avoid being influenced by fashion – delivers a clear edge. Viljoen, SA's top performing fund manager, is one of SA's few public sceptics of the Environmental, Social and Governance (ESG) theme beloved by many asset managers. His investors have benefitted..___STEADY_PAYWALL___.After yesterday's ESG-related resignation by the CEO of a leading German fund manager, the topic is attracting fresh attention (see below). This time, however, the message is 180 degrees from the long propagated schpiel that "We'll make you more money by investing your money in 'good' companies." .To whit, a major takeaway from an off-the-record Davos chat with the MD of the IMF is how idealistic, politically-correct policies are now exposed as unworkable and unaffordable. And that leaders worldwide are being encouraged to embrace reality from a Viljoen-type mindset. Can someone tell Cyril?.More to read today: .Documents Reveal Hundreds of Russian Troops Broke Ranks Over Ukraine Orders. Desertions and refusal to engage in the invasion have put Moscow in a bind over how to punish service members without drawing attention to the problem.When Progressives Fail, Inflation Edition. Why the public has lost confidence in claims to authority.Sheryl Sandberg Stepping Down as COO of Facebook Parent Meta Platforms. Driver of Facebook's business side for 14 years to remain on board.Time to Take the 'E' Out of ESG Investing.The decision by the boss of DWS to step down is a wake-up call to the investment industry as environmental claims come under growing scrutiny.By Rochelle Toplensky of The Wall Street Journal.The days when selling ESG funds was an easy marketing ploy for fund managers are over..Investing based on environmental, social and governance criteria has been a hugely popular new market for full-service asset managers struggling to compete with low-fee tracker funds. While this type of ethical investing can genuinely mean different things to different people, scrutiny of the environmental part of the claims is rising..On Wednesday, Asoka Woehrmann, chief executive of DWS, Deutsche Bank's minority-listed asset-management subsidiary, said he would resign after its coming annual general meeting. The news came the day after German authorities raided the offices of both companies amid allegations that DWS made misleading claims about ESG funds. The U.S. Securities and Exchange Commission and federal prosecutors also have ongoing probes..ESG investing has been a boon for the industry. Fund managers have often promised investors higher returns while doing good with their money. However, ESG is a slippery concept, without widely accepted definitions, criteria and metrics. Infamously, a single company's ESG rating can vary widely between credible credit-rating firms..That variance isn't unreasonable. There are many ways to combine the three criteria into one score, and for any single one there can be honest disagreement about what good or bad actually looks like. For example, some might rank Shell highly on "E" because it has a plan to decarbonize its business, or poorly because it sells oil and plans to sell natural gas for years..However, the scope for variance in environmental ratings is starting to narrow. European officials have set new rules for different categories of sustainable investments and are working on definitions of what is and isn't green. The SEC is also working on its own set of rules. While the standards increase the compliance burden on fund managers, they should also help ensure investors are getting what they were promised, rather than just a lot of hot air..Concerns about greenwashing—in which reality falls short of green claims—are widespread and recent events are only fanning the flames. The SEC recently fined Bank of New York Mellon $1.5 million for misleading claims about ESG funds. DWS reported far lower "ESG assets" in its most recent annual report than "ESG integrated" assets in the prior year. A whistleblower alleged last year that its disclosure was misleading. It will now be up to a new boss to draw a thicker line under the affair..A speech last month entitled "Why investors need not worry about climate risk" from the head of responsible investment at HSBC's Asset Management arm, in which he argued that the financial effects of climate change would be "de minimis," only reinforced concerns that inside thinking often doesn't match the marketing. The bank's executives were quick to distance themselves from the now-suspended employee's comments..The continuing fallout at DWS is a warning to other asset managers to stand up or scale back green claims. More broadly, the tighter rules around what qualifies as environmentally friendly, even as social and governance criteria remain less well-defined, could mean it is time to take the "E" out of ESG investing—if not retire the grouping altogether. It never helped investors, and now it isn't much use for fund managers either..NB FOR YOUR WALL STREET JOURNAL ACCESS….As a Premium subscriber you are entitled to full membership of wsj.com (normal price $29 a month). Be sure to action your access through the Premium link on the BizNews website. Because of The Wall Street Journal's credential requirements, be sure to create a password which has at least 8 characters and includes at least one letter and one number – NB it MAY NOT contain any special characters (ie #, !, @ etc). To maintain access to WSJ.com, you MUST enter our partner's website via Biznews Premium at least once a month. A final PS, if you had previously signed up for WSJ you'll need to clear the cookies from your device. Our helpdesk can assist – support@biznews.com

Premium: Money managers’ ESG cash cow gets a reality check – but too late for clients

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