Investors are selling out of ESG stocks because ESGs are a gimmick. An ESG is a label for investments referring to their “environmental, social and corporate-governance” rating. It means about as much as a “natural” label on packaged foods.
According to the Wall Street Journal, investors have pulled more than $14 billion out of ESG funds to put their cash flow into the red. Is this because investors don’t care about a “good cause”? No. It’s because these funds did not perform well.
It also could be because ESG is a dubious distinction of “social good.” With this label, you have no idea what you’re getting or what criteria these companies were evaluated on. The SEC has begun cracking down on these labels and in September, Deutsche Bank agreed to pay a $25 million fine for “misstatements regarding its Environmental, Social, and Governance (ESG) investment process.”
