Should ESG be called ‘sustainable investing’?
With ESG continuing to be a divisive topic among investors, a recent InvestmentNews Award winner is adding gasoline to the fire.
Peter Krull, InvestmentNews’ inaugural 2024 Advisor of the Year – ESG/Responsible Investing award winner, believes ESG, in its current form, is not what it means when it comes to investing. The founder of Equity Earth Advisors, an RIA based in North Carolina says the industry has moved away from sustainable responsible investing (SRI) to more hardcore environmental, social and governance (ESG) investing.
The reason behind that, Krull says, is because people wanted to have data “quantified.”
“They wanted to be able to see what are the numbers that are associated with ESG but at some point, it became a political issue. When you look at the materiality of many of the ESG metrics, they are actually completely material,” he says.
For example, an investor might consider not investing in a company based on whether they have facilities close to a large body of water or in fire-prone areas where materials could get damaged, causing stocks to drop.
Krull added that ESG also became politicized with issues on the social side when companies were making a stand for abortion rights or DEI initiatives.
“We’ve started to maybe move away a little bit from using the term ‘ESG.’ Providers or companies will take a traditional index, and they’ll layer on some ESG metrics, and adjust the allocation based on what the risk for those metrics is and call it sustainable,” Krull said. “At the end of the day, it doesn’t make it sustainable. It just makes it a less bad version of the original index.”
According to Morningstar, there are almost 650 different funds with a sustainable label. But when one looks at those funds and
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