Page 25 - ARUBA TODAY

BUSINESS Monday 27 January 2020
A25

Why that green fund you bought might include a coal miner

By STAN CHOE promises to work with index
NEW YORK (AP) — Environ- providers to come up with
mentally conscious invest- more and better sustain-
ing received a lot of at- able indexes, which can
tention last week after the lead to new index ETFs. But
world's largest asset man- just like an investor can't
ager said it plans to put cli- blindly jump into a "growth"
mate change and sustain- or "value" stock fund and
ability at the center of its assume they know what
investment approach. the manager's philosophy
The decision by BlackRock will be, investors need more
Inc. should create more in- details before they con-
vestment opportunities for sider joining the sustainable
those interested in funds investing field.
that take environmental, — DO I HAVE TO ACCEPT
social and governance is- LOWER RETURNS?
sues into account — known Some investors, even some
as ESG funds — before they big pension funds, assume
buy a stock or bond. Billions that limiting the universe of
of dollars are already flow- potential investments and
ing into such funds — $20.6 having less diversification
billion last year, up from inevitably leads to either
nearly $5.5 billion in 2018. worse returns or more vola-
Green investing isn't as sim- In this Jan. 6, 2020, file photo wind turbines stand on a hill and are surrounded by fog and clouds tility.
ple as it sounds, however. in the Taunus region near Frankfurt, Germany. But several studies have
Just because BlackRock or Associated Press pushed against this. After
any other fund manager looking at the performance
slaps an ESG or sustainable is as much a tool to reduce Furthermore, BlackRock is producers as long as those of more than 10,000 mutual
label on a fund doesn't risk in investments as any- only eliminating thermal companies remain in the in- funds and ETFs from 2004
necessarily mean it com- thing. coal producers from the dexes they track. The most to 2018, Morgan Stanley
pletely syncs with an inves- SRI, meanwhile, is more akin portfolios where its manag- popular index funds tend to found there is no consistent
tor's priorities. to investing alongside one's ers are actively choosing track the broad stock mar- or statistically significant dif-
"I don't think these things morals. The term has fallen which stocks and bonds ket, which means they typi- ference in returns between
have been very well de- out of favor with some, to own. BlackRock's index cally include coal miners, ESG-focused and tradition-
fined so far," said Chester though, who worry it's too funds, which account for oil explorers and other fos- al funds. The study also said
Spatt, finance professor at reminiscent of the indus- the bulk of its $7 trillion in as- sil-fuel companies based that sustainable funds may
Carnegie Mellon's Tepper try's earliest funds decades sets under management, on their market value. have less violent swings
School of Business and for- ago that simply excluded will continue to own coal For its part, BlackRock during down markets. q
mer chief economist at the tobacco companies and
Securities and Exchange other "sin" stocks rather
Commission. "ESG investing than doing more rigorous
is emerging and increas- analysis.
ingly important, and I think — WILL ANY ESG FUND DO?
this will be a first-order issue Not by a long shot. Prepare
on regulators' agenda in to do your homework.
the next few years." To see how nuanced
Here's what investors should things can get, consider
know about this type of in- BlackRock's blockbuster
vesting: announcement. As part
— WHAT DO ALL THESE AC- of its effort to put climate
RONYMS LIKE ESG AND SRI change at the center of its
MEAN? investment strategy, Black-
These two get used inter- Rock will exit investments in
changeably sometimes, stocks and bonds of certain
but "environmental, social coal producers.
and governance" investing BlackRock is dumping com-
can be quite different from panies that get more than
"socially responsible invest- a quarter of their revenue
ing." from thermal coal, which
ESG is the more popular is primarily used in power
acronym now, and it im- generation and creates
plies managers consider lots of carbon emissions.
companies' performance These investments are risky
on the environment, social because of the possibility of
issues and corporate gov- profit-reducing regulation
ernance before investing and because power plants
in them. The thought is to are increasingly switching
avoid companies with poor to natural gas and other
track records on ESG issues fuels. But BlackRock will still
that could be exposed to invest in companies that
big potential fines or other mostly sell coal used in steel
blow-ups in the future. ESG plants.