Earth Day 2023: The ESG Dilemma

ESG Investing

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On April 22nd, we celebrate Earth Day –an occasion that many around the world celebrate every year. We are supposed to take a moment to appreciate our planet’s resources, which we consume every day. This day also raises an essential question – should you consider investing in ESG (Environmental, Social, and Governance) funds?

The Opaque Nature of ESG Funds

I am asked this question often, at least monthly. Should my investments should be more or less ESG friendly rather than building a portfolio based on “where the puck is going?” It’s a valid question, and lately, ESG products are actually receiving negative news for the first time in years.  

Let’s talk about what ESG investing, in theory, should eliminate: 

  • The entire oil and gas sectors

  • The garbage and refuse industry

  • Most chemical companies

  • The entire US defense industry

  • Tobacco, alcohol, and the firearms industry

  • And any company engaged in human rights abuses

Let’s look at companies in one of the largest ESG Indexes:

  1. •Amazon
  2. • Apple (which manufactures most of its products in China)
  3. • Berkshire Hathaway
  4. • Chevron (really?)
  5. • Exxon (again, really?)
  6. • Johnson & Johnson
  7. • JP Morgan (now ramping up to open branches in China)
  8. • Meta (with massive outreach to 3rd world countries, including those that are autocratic)
  9. • Microsoft
  10. • Nvidia
  11. • Amgen
  12. • General Electric (does business with most countries worldwide)
  13. • PepsiCo (what used to be the largest soda supplier in Russia)

You see where I’m going with this. It’s clear that the holdings of ESG funds don’t always follow the actual ESG message. The field can be opaque.

The Apple Dilemma and Manufacturing in China

During a lengthy podcast interview, I questioned the Portfolio Manager of one of the world’s largest ESG Products about why Apple (AAPL) was their #1 holding. After some time, she admitted that Apple is the top holding in virtually every ESG fund, citing the need to remain competitive and attractive to investors under the age of 40, who have a strong affinity for the company. 

While I don’t discredit Apple’s products or its following, my concern lies in the company’s manufacturing operations in China, where more than one million slaves exist. China’s potential for global domination also raises red flags. I believe American companies with Chinese operations, including Apple, should relocate their entire manufacturing operations to other countries or back to the United States.

Celebrating Earth Day and Being Good Stewards

As we celebrate Earth Day, let’s not forget to be good stewards of our resources. This is an excellent opportunity to remember to pick up litter, filter water instead of purchasing bottled water, and ensure that bottles end up in recycling bins.

Enjoy the festivities on April 22. Feel free to reach out if you have any questions or want to talk more about ESG and how it relates to your investments.

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