Exchange-traded funds built on environmental, social and governance (ESG) themes have attracted record inflows this year, as the US grapples with the pandemic, devastating weather and racial unrest.
But for anyone looking to invest with conscience, it might pay to check under the hood.
Inflows to ESG ETFs have surged to $22 billion so far in 2020, already about three times the 2019 total, according to data compiled by Bloomberg. The trouble is, the label isn’t policed by US regulators, and no one can quite agree how to weigh ESG components – resulting in some surprising fund holdings.
BlackRock’s iShares ESG Aware MSCI USA ETF includes stakes in Exxon Mobil and Chevron, for example, while its biggest holdings are in tech companies under investigation for monopoly abuse. Stocks in Xtrackers MSCI USA ESG Leaders Equity ETF include McDonald’s, which has come under scrutiny for its treatment of employees.
“If you go in there thinking that you want to ‘woke’ up your portfolio, and you see those companies, you’re going to be like, ‘What? That’s not what I signed up for’,” said Eric Balchunas, ETF analyst for Bloomberg Intelligence.
Three BlackRock products dominate the ESG fund market and make up the majority of total assets. BlackRock’s iShares ESGU, iShares ESG Aware MSCI EM ETF and iShares ESG Aware MSCI EAFE ETF account for about $13.4bn of year-to-date flows.
BlackRock works with MSCI to set its funds’ inclusion and exclusion rules. MSCI, which scores ETFs based their holdings’ environmental, social, and governance risks and opportunities, rates ESGU and ESGD as AA, one level below the top ranking, while ESGE is rated A.
ESGU’s index screens for companies involved in civilian firearms, controversial weapons, tobacco, thermal coal and oil sands. A peer fund from Vanguard takes a stricter approach: Its $2.2bn ESG US Stock ETF excludes companies involved in adult entertainment, alcohol, tobacco, weapons, fossil fuels, gambling and nuclear power.
The question on everybody's mind now revolves around green washing
The ESG category is inherently subjective, says Ben Johnson, Morningstar’s global director of ETF research. While investors may want to “tip their hat” to ESG, many don’t want to fall too far behind benchmark performances.
“The preponderance of assets in ESG funds are in ESG light funds,” Mr Johnson says. “The level of spiciness, if you will, goes from mild to medium to hot – in terms of where the assets are right now, it’s all in pico de gallo.”
Complicating socially conscious investing is the fact the Securities and Exchange Commission doesn’t regulate how the ESG label is applied, though it’s considering adding rules for funds that call themselves ESG or sustainable.
Independent ESG rating companies around the world have sprung up to fill the gap. But they don’t always see eye-to-eye. A 2019 paper from MIT Sloan School of Management found the correlation of five raters’ ESG scores averaged 0.61, compared with a 0.99 correlation of credit ratings from Moody’s Investor Services and S&P Global Ratings.
Differences can arise in weighing a company’s overall actions. Amazon.com for example, has been accused of dangerous warehouse practices, but has pledged to become net carbon neutral by 2040.
“The question on everybody’s mind now revolves around green washing,” says Shaheen Contractor, an ESG analyst for BI, referring to company efforts to create an undeserved image of environmental responsibility.
That’s a concern for Dylan Tanner, executive director of InfluenceMap, an organisation that provides data and analysis on how businesses are impacting the environment.
“Some of the data providers who rate companies on ESG tend to firstly rely on a company’s own disclosures and sustainability reports too much,” he says. “How meaningful those numbers are, when you’re blending climate with labour, should be questioned.”
Issuers have realised the benefits of ESG branding. At least eight funds have relaunched this year to switch to the strategy, versus a maximum of two in previous years, according to data compiled by Bloomberg Intelligence.
There have been 17 ESG ETFs launched so far in 2020, compared with 10 in all of 2019. And the inflows keep coming. ESG funds have already taken in almost $4.1bn in October, on track for their best month since at least 2013.
Another reason could be that issuers like BlackRock are using their ESG ETFs in their model portfolios, suggesting that organic market demand might be less than it than appears, according to BI.
“The good news for ESG proponents is that BlackRock is the biggest money manager, and they have a lot of influence,” Mr Balchunas says. “If they are putting their money where their mouth is, that can’t hurt.”
Key findings of Jenkins report
- Founder of the Muslim Brotherhood, Hassan al Banna, "accepted the political utility of violence"
- Views of key Muslim Brotherhood ideologue, Sayyid Qutb, have “consistently been understood” as permitting “the use of extreme violence in the pursuit of the perfect Islamic society” and “never been institutionally disowned” by the movement.
- Muslim Brotherhood at all levels has repeatedly defended Hamas attacks against Israel, including the use of suicide bombers and the killing of civilians.
- Laying out the report in the House of Commons, David Cameron told MPs: "The main findings of the review support the conclusion that membership of, association with, or influence by the Muslim Brotherhood should be considered as a possible indicator of extremism."
AI traffic lights to ease congestion at seven points to Sheikh Zayed bin Sultan Street
The seven points are:
Shakhbout bin Sultan Street
Dhafeer Street
Hadbat Al Ghubainah Street (outbound)
Salama bint Butti Street
Al Dhafra Street
Rabdan Street
Umm Yifina Street exit (inbound)
The specs
Engine: 2.0-litre 4cyl turbo
Power: 261hp at 5,500rpm
Torque: 405Nm at 1,750-3,500rpm
Transmission: 9-speed auto
Fuel consumption: 6.9L/100km
On sale: Now
Price: From Dh117,059
The National's picks
4.35pm: Tilal Al Khalediah
5.10pm: Continous
5.45pm: Raging Torrent
6.20pm: West Acre
7pm: Flood Zone
7.40pm: Straight No Chaser
8.15pm: Romantic Warrior
8.50pm: Calandogan
9.30pm: Forever Young
'Spies in Disguise'
Director: Nick Bruno and Troy Quane
Stars: Will Smith, Tom Holland, Karen Gillan and Roshida Jones
Rating: 4 out of 5 stars
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Killing of Qassem Suleimani
Red flags
- Promises of high, fixed or 'guaranteed' returns.
- Unregulated structured products or complex investments often used to bypass traditional safeguards.
- Lack of clear information, vague language, no access to audited financials.
- Overseas companies targeting investors in other jurisdictions - this can make legal recovery difficult.
- Hard-selling tactics - creating urgency, offering 'exclusive' deals.
Courtesy: Carol Glynn, founder of Conscious Finance Coaching
Jetour T1 specs
Engine: 2-litre turbocharged
Power: 254hp
Torque: 390Nm
Price: From Dh126,000
Available: Now
GAC GS8 Specs
Engine: 2.0-litre 4cyl turbo
Power: 248hp at 5,200rpm
Torque: 400Nm at 1,750-4,000rpm
Transmission: 8-speed auto
Fuel consumption: 9.1L/100km
On sale: Now
Price: From Dh149,900
Marathon results
Men:
1. Titus Ekiru(KEN) 2:06:13
2. Alphonce Simbu(TAN) 2:07:50
3. Reuben Kipyego(KEN) 2:08:25
4. Abel Kirui(KEN) 2:08:46
5. Felix Kemutai(KEN) 2:10:48
Women:
1. Judith Korir(KEN) 2:22:30
2. Eunice Chumba(BHR) 2:26:01
3. Immaculate Chemutai(UGA) 2:28:30
4. Abebech Bekele(ETH) 2:29:43
5. Aleksandra Morozova(RUS) 2:33:01
if you go
The burning issue
The internal combustion engine is facing a watershed moment – major manufacturer Volvo is to stop producing petroleum-powered vehicles by 2021 and countries in Europe, including the UK, have vowed to ban their sale before 2040. The National takes a look at the story of one of the most successful technologies of the last 100 years and how it has impacted life in the UAE.
Read part four: an affection for classic cars lives on
Read part three: the age of the electric vehicle begins
Read part one: how cars came to the UAE
UAE currency: the story behind the money in your pockets
HIJRA
Starring: Lamar Faden, Khairiah Nathmy, Nawaf Al-Dhufairy
Director: Shahad Ameen
Rating: 3/5
What the law says
Micro-retirement is not a recognised concept or employment status under Federal Decree Law No. 33 of 2021 on the Regulation of Labour Relations (as amended) (UAE Labour Law). As such, it reflects a voluntary work-life balance practice, rather than a recognised legal employment category, according to Dilini Loku, senior associate for law firm Gateley Middle East.
“Some companies may offer formal sabbatical policies or career break programmes; however, beyond such arrangements, there is no automatic right or statutory entitlement to extended breaks,” she explains.
“Any leave taken beyond statutory entitlements, such as annual leave, is typically regarded as unpaid leave in accordance with Article 33 of the UAE Labour Law. While employees may legally take unpaid leave, such requests are subject to the employer’s discretion and require approval.”
If an employee resigns to pursue micro-retirement, the employment contract is terminated, and the employer is under no legal obligation to rehire the employee in the future unless specific contractual agreements are in place (such as return-to-work arrangements), which are generally uncommon, Ms Loku adds.
Killing of Qassem Suleimani
Specs
Engine: Electric motor generating 54.2kWh (Cooper SE and Aceman SE), 64.6kW (Countryman All4 SE)
Power: 218hp (Cooper and Aceman), 313hp (Countryman)
Torque: 330Nm (Cooper and Aceman), 494Nm (Countryman)
On sale: Now
Price: From Dh158,000 (Cooper), Dh168,000 (Aceman), Dh190,000 (Countryman)
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AndhaDhun
Director: Sriram Raghavan
Producer: Matchbox Pictures, Viacom18
Cast: Ayushmann Khurrana, Tabu, Radhika Apte, Anil Dhawan
Rating: 3.5/5
Benefits of first-time home buyers' scheme
- Priority access to new homes from participating developers
- Discounts on sales price of off-plan units
- Flexible payment plans from developers
- Mortgages with better interest rates, faster approval times and reduced fees
- DLD registration fee can be paid through banks or credit cards at zero interest rates
Honeymoonish
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500 People from Gaza enter France
115 Special programme for artists
25 Evacuation of injured and sick
COMPANY PROFILE
Founders: Sebastian Stefan, Sebastian Morar and Claudia Pacurar
Based: Dubai, UAE
Founded: 2014
Number of employees: 36
Sector: Logistics
Raised: $2.5 million
Investors: DP World, Prime Venture Partners and family offices in Saudi Arabia and the UAE
How to join and use Abu Dhabi’s public libraries
• There are six libraries in Abu Dhabi emirate run by the Department of Culture and Tourism, including one in Al Ain and Al Dhafra.
• Libraries are free to visit and visitors can consult books, use online resources and study there. Most are open from 8am to 8pm on weekdays, closed on Fridays and have variable hours on Saturdays, except for Qasr Al Watan which is open from 10am to 8pm every day.
• In order to borrow books, visitors must join the service by providing a passport photograph, Emirates ID and a refundable deposit of Dh400. Members can borrow five books for three weeks, all of which are renewable up to two times online.
• If users do not wish to pay the fee, they can still use the library’s electronic resources for free by simply registering on the website. Once registered, a username and password is provided, allowing remote access.
• For more information visit the library network's website.
THE SPECS
Engine: 1.5-litre, four-cylinder turbo
Transmission: seven-speed dual clutch automatic
Power: 169bhp
Torque: 250Nm
Price: Dh54,500
On sale: now
MATCH INFO
Uefa Champions League quarter-final (first-leg score):
Juventus (1) v Ajax (1), Tuesday, 11pm UAE
Match will be shown on BeIN Sports
HAJJAN
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Six large-scale objects on show
- Concrete wall and windows from the now demolished Robin Hood Gardens housing estate in Poplar
- The 17th Century Agra Colonnade, from the bathhouse of the fort of Agra in India
- A stagecloth for The Ballet Russes that is 10m high – the largest Picasso in the world
- Frank Lloyd Wright’s 1930s Kaufmann Office
- A full-scale Frankfurt Kitchen designed by Margarete Schütte-Lihotzky, which transformed kitchen design in the 20th century
- Torrijos Palace dome
UAE jiu-jitsu squad
Men: Hamad Nawad and Khalid Al Balushi (56kg), Omar Al Fadhli and Saeed Al Mazroui (62kg), Taleb Al Kirbi and Humaid Al Kaabi (69kg), Mohammed Al Qubaisi and Saud Al Hammadi (70kg), Khalfan Belhol and Mohammad Haitham Radhi (85kg), Faisal Al Ketbi and Zayed Al Kaabi (94kg)
Women: Wadima Al Yafei and Mahra Al Hanaei (49kg), Bashayer Al Matrooshi and Hessa Al Shamsi (62kg)
Company profile
Company: Rent Your Wardrobe
Date started: May 2021
Founder: Mamta Arora
Based: Dubai
Sector: Clothes rental subscription
Stage: Bootstrapped, self-funded
The specs
- Engine: 3.9-litre twin-turbo V8
- Power: 640hp
- Torque: 760nm
- On sale: 2026
- Price: Not announced yet
Specs
Engine: Dual-motor all-wheel-drive electric
Range: Up to 610km
Power: 905hp
Torque: 985Nm
Price: From Dh439,000
Available: Now
Farasan Boat: 128km Away from Anchorage
Director: Mowaffaq Alobaid
Stars: Abdulaziz Almadhi, Mohammed Al Akkasi, Ali Al Suhaibani
Rating: 4/5
