New Study Outlines Fallacies of So-Called ‘Sustainable’ Investments

Press release from Heartland

‘Fiduciaries have a moral obligation — and, in some cases, a legal obligation — to avoid sustainable investment practices’

ARLINGTON HEIGHTS, IL – A Heartland Institute Policy Brief on “Fallacies of So-Called ‘Sustainable’ Investments” documents the growing efforts of climate alarmists force fund managers, in violation of their fiduciary duties to their clients, to defund cost-effective and clean energy generated by fossil fuels, diverting funds to costly and inefficient alternatives like wind and solar.
The study’s author, former merchant banker Martin Hutchinson, shows how these efforts drive up the costs of electricity, harming consumers and economies, and contribute to today’s corrupt, crony system, favoring politically connected “green” firms.

From the executive summary of the study:

In recent decades, there has been substantial growth in the so-called “sustainable” investments movement, which encourages portfolio managers to invest their clients’ funds in assets that are perceived to promote social benefits, especially assets believed to benefit the environment. According to a recent report by the U.S. Forum for Sustainable and Responsible Investment, the total U.S.-domiciled assets invested “sustainably” — a term broadly defined to include socially targeted investments — is $12 trillion.

A significant catalyst behind environmentally targeted investments is the belief that humans, through our use of fossil fuels, are primarily responsible for causing global warming and other environmental harms. A growing number of activists and investors believe fossil fuels cause serious harm to life on Earth and that the problems allegedly associated with fossil fuels will only get worse if levels of carbon dioxide (CO2) emissions are not reduced. This view is severely flawed and has caused numerous investors to improperly manage investments.

The recent riots in the streets of Paris against motor-vehicle fuel tax hikes make clear the public is catching on to the serious harm done by “green” policies, including many of those supported by sustainable investments. Portfolio managers can no longer accept without serious doubts the claim that antifossil-fuel investments benefit society.

This Policy Brief critically examines — from the point of view of a fiduciary or any other investor whose primary duty or goal is to maximize returns — the arguments made in favor of investing in so-called “sustainables.” This paper shows that fiduciaries have a moral obligation — and, in some cases, a legal obligation — to avoid sustainable investment practices. Such investments usually involve government subsidies and are made as a result of pressure from governments, meaning they are not promising on their own merits. Rather than embrace sustainable investment practices, fiduciaries should focus on sound science and investment practices that maximize risk-adjusted returns.

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58 thoughts on “New Study Outlines Fallacies of So-Called ‘Sustainable’ Investments

  1. I have to disagree with the thesis here.

    Managers of big money are among the most cold-blooded people I have ever encountered. They do not care in the least about the “social consequences” of their investments – only whether they will make more money.

    At this moment in time, although the tide is changing, corrupt politicians and bureaucrats are still funneling billions of dollars into “sustainability” scams. There are still enormous profits to be made, so the managers will keep their funds in those scams until they become unprofitable. (Some, admittedly, will make a error in timing as to just when to bail out – but bail out they will.)

    • You are right that managers of big money are cold blooded. But their job is not to make money for their clients. Their job is to make money for their employers. They do that by creating investment vehicles that get clients to invest their money. If clients want “green” funds, then the investment companies will create green funds, and argue that their green funds are better than their competition’s green funds. As long as they get their commissions, they don’t give a sh*t if their funds make money or not.

      • You clearly do not understand how VC funds work.

        VC fund managers get a small percentage of total fund invested as a management fee, which will give them a fairly average middle class salary. The real money is the ‘carry’ i.e. the % of fund profits they earn at the end of the ten year investment cycle.

        As a fund manager, if you make no money, you will struggle to fund your next cycle. If you make a lot of money, you can increase your fund size 3-10 fold next time around.

        The VC fund managers are obsessed with making profits.

        • Who said anything about VC funds? The article is about investment funds, of which venture capital funds would be a sub-set.

          I recently interviewed several financial institutions to see what they had to offer. Every one of them pitched green funds to me. But not one of them pitched a green VC fund.

      • But their customers do.

        Ultimately although there is a lot of legacy miney around – funds so old that no one knows they won part of them,. that historically show very poor returns, the majority of money is in pretty highly managed funds and the lists of these and their performance are there for all to see. Funds and fund managers who are showing below par returns do not last.

        The City is not interested in sustainability. It is interested in profit.,

        That is why Green companies keep going bust.

        Sure heavy subsidies can make an unprofitable business profitable – for a while.

        But the Citys vciew on this was summed up to me around 2000 when I found myslef shsaringa table with a German banlker aqt an ‘elternative’ energy’ confernece..

        “Do any of these technologies survive without the government?”

        I replied “No”.

        “Ach, then I am back to London now, I have been here before. The government gives, we invest, we make profit, the government says you are making too much profit, and the government stops giving, and we lose”.

        Renewable energy will survive until the nature of the fraud is so self evident that people stop supporting governments who allow it.

      • That is what “Co2 Cap and trade” is all about. It allows investment “banks” to make money on both ends of the trade. It will/is very similar to what caused the “mortgage crises”

      • Not entirely so.
        At cyclical peaks in the stock market, or bond market, they are sheep.
        Or lemmings.
        As in “Come on in. all the Lemmings are doing it.”
        However, there are some who are independent.

      • Rhys, many here understand what is VC funding when you plain state “VC funding” is about

        venture funding – Risikokapital.

        And that’s not cold blood but helplessness.

      • Great. BlackRock “manages” our federal Thrift Savings Plan. They also managed to lose money on the three stock index funds at a time when everyone else was making a killing. Now I see why.

        • Ummmm how does an index fund lose money when everyone else is making a killing?

          Isn’t the whole idea of an index fund to invest in what everyone else is investing. There is no picking of individual stocks or investments.

          • Note that when you buy a share of an index fund, you are not buying a piece of the “index” – you are buying a piece of a pool of money that is invested in stocks, stocks whose averaged (sometimes weighted) values make up a particular index. The fund manager keeps the proportions of the various stocks synchronized with the proportions used by the publishers of the index.

            Index funds are narrow or broad. Narrow ones invest in the stocks that make up a particular index – such as Exxon-Mobil, BP, etc. for an “Energy Index”, or Microsoft, Apple, Alphabet, etc. for a “Technology Index”. Broad indexes are in the stocks that reflect the more general market, such as the Dow Jones Industrial, the NASDAQ 100, and so on.

            Invest in (or bail out of) the wrong “index” at the wrong time, and you can lose your shirt, while other “index” investors are making money hand over fist.

            (Mods, pardon the long comment, please. I’ll stop here. WUWT is science, sometimes politics, but certainly not advertised as an investor resource site.)

    • WO,
      It is wrong to invest or not in stereotypes of business people. If you actually worked and mixed with managers of large $$$amounts, you would be surprised at their high level of concern for other people and for the consequences of their actions. Sure, you and I can point to some exceptions, but overall you are on thin ice, unsupported by references. Geoff

      • I came across as perhaps a bit harsh?

        Yes, I know several big money managers that are quite “conscious” – with their OWN money. And, no, they aren’t going to do such things as invest in obvious and public evil, such as blood diamonds. Many will research for the not so obvious evil (such as cobalt sourced from the Congo, or shoes manufactured in Thai sweatshops) and avoid those investments also.

        Most, though, don’t view something that is being pushed by government funding as ever being evil. Like many, they equate “government” with “society.” So they are being virtuous by investing in the things that “society” wants – and getting out of them when “society” no longer supports it.

        (Then there are the true snakes, as in any profession. They’ll take the money of gullible investors that want to be “virtuous” while making money – and not care a bit, because they’ve taken their rake-off that won’t be affected when the scheme collapses.)

        The general rule is, when you have extra money laying around, decide what you want to do with it. If you want to make more money, turn it over to an investment professional that is going to do their best to increase it, whatever that takes (within the bounds of legality). If you want it to be used to benefit society, turn it over to whoever you think will do that and plan on not seeing it again. This rule should be applied whatever your ideology or most worrisome social problem is.

      • Agreed! The public school retirement fund for my city has lost over $750-Million to one of these Green Dream plans. The teachers bought the lie hook, line and sinker.

        • CALPERS (California state employees’ pension fund) owns many shares of TSLA—which it will come to regret. Probably greenies on its board force it to have this holding, especially as it’s in-state.

    • A recent example of this occurred in the province of Quebec. Three years ago, a company called Téo Taxi was set up with the help of government funds and millions from the public pension fund. The company bought hundreds of electric taxis including expensive Teslas and hired hundreds of drivers who were paid a salary rather than on a per ride basis. All this was done when the taxi industry was in turmoil due to the arrival of ride services like Uber. As usual, it wasn’t long before bankruptcy was declared and another looney green idea bit the dust. Three hundred employees are now out of work and the e-cars will be auctioned off. The taxpayers and the pension fund are on the hook for the loss. When you call for a taxi, do you specify what the propulsion system must be? I guess nobody thought to ask that simple question. They were too blinded by the eco friendly idea of an electric taxi.

      • Maybe I can put you in touch with Griff, upthread, for a small fee 🙂

        More seriously,

        “A growing number of activists and investors believe fossil fuels cause serious harm to life on Earth and blah blah blah…”</blockquote

        I think we might now have passed the point where "a growing number believe".
        While there may still be a growing number of articles published that make such claims, it seems quite possible that we may have already reached "peak believers".

  2. So if governments stopped funding Green schemes, then the fund managers would rightly advise their clients that such a scheme is not a good thing to invest in. In simple talk, let the market decide, without interfearence from governments.

    MLE

  3. Wind farm to cost taxpayer £500m a year
    Every household in Britain faces paying £6 a year in subsidies for the world’s biggest offshore wind farm, which began generating power from its first turbine yesterday.
    Hornsea One is being built by Orsted, the Danish energy group, 75 miles off the coast of East Yorkshire.
    https://www.thetimes.co.uk/edition/business/wind-farm-to-cost-taxpayer-500m-a-year-2khtnwp0x

    Get those kids back to school to learn some proper science !

  4. Larry Fink of BlackRock rather famously wrote ““Society is demanding that companies, both public and private, serve a social purpose,” and “To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society.” He also hinted that those who don’t heed his advice may lose support from BlackRock, and since they manage over $6T they have the muscle to influence major corporations. The point is what constitutes a positive contribution to society? Is it whatever Fink says it is? After Fink’s first letter on this in 2018, I removed any BlackRock ETFs (iShares) from my investments. I do consider the path Fink is on is dangerous and will lead to poor choices by corporate leaders, and this would negatively impact my financial future.

    • Profit is a measure of the sustainability of a specialization model. When a firm makes a profit, whatever its model, one can deduce that goods/services produced have more value than the cost endured for producing them.

      This result indicates that the firm has positively contributed to the well being of its consumers, and more broadly to the wealth of the public at large. This is the path to global enrichment (trickle-up economics).

      Why do you want these firms do anything else?

    • The Social Capital Investment movement, which is under the radar of most people, is doing extremely well these days. A So-Cap investment has a triple bottom line: a positive return on social impact, economic return and environmental impact. One can dispute separately what constitutes “positive” in each case, but the model is clear: do well on all three metrics.

      The main criticisms of “capitalism” are that it harms people and things. No one disputes that it accumulates wealth under certain conditions.

      So-Cap investing is hot stuff these days and is highly beneficial on multiple fronts. There are now So-Cap investment conferences – lots of them and large. I have presented the history of my own So-Cap endeavour at the main annual meeting in San Francisco. The company has been going for 35 years and delivered on all three bottom lines.

      I am confident that as moral and ethical behaviours improve, this will become the dominant paradigm as raw greed is shamed out of the market. Money has no ethics but people do.

      • Ah yes. Morality. Ms. Pelosi believes walls are immoral. Should we starve out any companies immoral and unethical enough to build them? As I indicated above, the rub is that someone will end up being the one to declare what is moral and ethical. And that will likely be based on a given ideology or simply on corporate “partners.” Me, I’m happy to just stick with a simpler model where profits drive the choices for corporations. I really don’t think capitalism hurts people unless there is a corrupting force in the mix, crony capitalism. I’ll impose my thoughts on ethics and morality to my behavior, and won’t try to force it on you. Much of the climate sham is because people, good people, believe they know what is ethical (renewables) and what isn’t (fossil fuels) and they feel justified in making me live to their belief because of course they “know” that it is what is good for me, even if I am to ignorant to see it.

      • Harm is in the eye of the beholder.

        Some will argue that any job paying less than $15/hr harms the worker. Others will point out that a low paying job is better than no job, which is often what happens whenever the minimum wage is increased.

        Some will argue that an open pit mine, harms the environment. Others will point out that an open pit mine is safer for the workers and saves a lot of money, some of which is used when the mine has played out to restore the landscape.

        • I have come up with my own very similar concept to Crispin’s above. I termed it “Social Capitalism”.

          My argument is that WE are in control in a capitalist economy, as long as we control our own investment, which is not terribly difficult in countries I’ve lived in (although it used to be). WE choose our investment of pension funds, and stop allowing fund managers to control it, because they typically just look for the most profit. If you allow that, YOU are feeding the greedy capitalist system! People who complain about that greed can almost never grasp that simple concept in my experience.

          What you say above is all true, but everyone should get to invest in what they think is correct, be it from a political, ethical, humanitarian, or greed perspective. In my opinion, this is economic democracy. I believe it could make the world what the people want it to be in the long term if adopted. I also believe that most people are going to be wrong, but we’ll get what we deserve. The alternative is some kind of control, most likely governmental, which I deplore.

          Basically, the greedy capitalist pigs are the investors, which is all of us who earn a living and invest in a pension, at least in developed worlds.

      • Raw Greed only exists in the minds of socialists who have never bothered to actually understand capitalism.

        • The marxies have redefined “enlightened self interest” to mean greedy and I’m a little surprised to see some here that I otherwise admire buy into this.

          ‘Capitalism’ itself is a pejorative term invented by Karl Marx. Investing in a legitimate venture or business is perfectly moral. And hoping that the investment gives an excellent return is perfectly moral. Free enterprise is regulated by the government to prevent unfair competitive practices in business and practices unfair to the consumer (collusion, dividing up markets, predatory pricing, etc). On top of that hundreds of other laws seek to prevent pollution, harm to wildlife, control and care of water use, etc.

          Do businesses, break laws? Of course they do, but penalties can be harsh. Government can break up companies (a glaring oversight in the hi-tech field may, should, soon meet such a fate). Governments can put execs in jail – Enron anyone?

          Crispin surprises me with his comments. This very post is about subjectively preventing natural resource development that would otherwise be a big contribution to New Yorkers’ pocketbooks and wellbeing. How’s that for socially responsible investment! If I wanted someone to subjectively decide the morality of my investments, I couldn’t have done much better than voting for someone like HRC! All those planet saving solar panels. Maybe have a tithe to invest in the Clinton Foundation because it is billed to do so much good.

          No let me get the biggest damned return on my legal investment and I can give some if it away to increase its social benefit if I like.

    • Hands linked around a huge bonfire, singing Kumbaya and sharing stories of “social purpose” and feeling virtuous. The only problem is the bonfire is fueled with other peoples money.

  5. One of the key instructions on fiduciary responsibilities has been the “Prudent Man Rule” as defined in an Illinois court. Maybe 1934.
    It has been cited in the Canadian investment business as well.
    Part of the advice is don’t invest the customers money in something you would not buy yourself.
    But in a roaring bull market, prudence disappears.
    Then, in seeking the charms of”Lady Bountiful”, the Street invents “Rosy Scenarios” in a “Goldilocks” economy. Not to hot, not too cold.
    And always, “Miss Adventure is waiting.
    Not to overlook Mother nature.

  6. Sustainable stupidity. This is a game of musical chairs with government funds supplying the music.. As in the Teotaxi example the music stopped when the business obviously failed. The taxpayers and pension fund took the hit. Enough such investments and the pension fund will look to the strapped government to bail out their cat food eating members.

    some days you want to say try the Friskies salmon chunks. This is what you ask for.

  7. ‘Today’s corrupt, crony system, favoring politically connected “green” firms.’ Oil companies wrote the book on corruption and cronyism long before we knew about global warming. At worst we are trading one group of assholes for another.

    • No. Even if you are correct about the ethics of both groups, we would be trading one group of crooks who provide us products that deliver as promised at affordable costs, with a group of crooks that deliver products not fit for use and at unaffordable prices.

  8. Fund managers should focus on one thing, and one thing only. Maximizing the performance of the fund they are managing.
    Whether a particular activity is socially beneficial, or socially harmful is not a call the fund manager is qualified, or even authorized to make.

    If the politicians feel that an activity is harmful, it is up to them to outlaw it.

  9. A batterie seller in the 5. generation.

    Old money.

    That’s what Angela “Angie” Merkel LIKES.

  10. DIHT.

    Deutscher Industrie und Handelskammer Tag.

    Dreaming of Schwarz-Schilling WWII wake copper cable thieves arise

    elektromobility.

    Elon Musk GEH UNS VORAN!

  11. Thanks WUWT, Anthony Watts, all contributors for your understanding and patience.

    Cherioo – Hans

  12. Ich kann ganz und einfach überhaupts nicht verstehen warum solche Leute Leserbriefe schreiben.

    Kannitverstaan.

    Hans

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