Sustainable Investing (ESG, SRI)

Individuals and large institutions alike are allocating more of their dollars to investment strategies that meet some level of environmental, social, and governance criteria. This is commonly referred to as responsible, sustainable, or green investing.

Referenced in this video:

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[BenFelixCSI]

If you would like more information on this topic, it has been discussed numerous time on the Rational Reminder Podcast. Episode 63 features a Canadian economist, Tim Nash, who specializes in sustainable investing. Episode 82 is similar to this video. Episode 84 has follow up commentary from Tim Nash regarding Episode 82. Episode 100 features Ken French who gives his take on sustainable investing. Tim Nash offers commentary on Ken French's point of view in Episode 115.

[lammertjandam]

Hello Ben Felix, this is Lammertjan Dam, one of the authors of the paper you discuss... I must say, you do a great job explaining our paper, probably even better than me.... Anyway thanks for your interest in our work. Cheers!

[fwbs]

Just the video I needed! BMO came out with new ETFs that have ESG in their title and even though I'd heard of it before, I didn't know what it was. Thanks Agent 47.

[Tuxedo_Cake]

I didn't even know this was a thing. Best channel on YouTube, I learn so much with every episode.

[wryltxw]

Best analysis seen so far. Something Blackrock never highlights.

[robinimpey]

Fantastic explanation of the financial cost of sustainable investing. The complicating factor is that the cost of sustainable investing can be calculated, but the cost of not is less clear.


As a boy from the West I would really appreciate it if you could go do a presentation for Mr. Trudeau. I think OUR portfolio could use some adjustments. 😉

[JMise]

Interesting points. I thought that the companies dealing with tobacco, coal, oil etc. have a risk premium since they are more likely to suffer due to legal restrictions that governments may impose on them in the future.

[MichaelYoungShin]

I'm pleasantly surprised to learn that a study has found that ESG investing does have social impact.
Skimming the paper, it doesn't look like they established how big the impact is.

I invest in ESG index funds mainly to avoid profiting from businesses that I don't like.

[carsonc]

Ben, when you buy shares of a sustainable company or any company you are almost always buying it from other stockholders, not the companies themselves. So, while you may make a teeny tiny increase in their stock price, you really aren't doing anything to "support" sustainable companies. It seems the best way to make a change is to favor actually buying products and services from sustainable companies over less sustainable companies, and leave your investments fully diversified. Thoughts?

[lonzo]

This fact based, nuanced discussion of ESG investing is so much better than most of the vids I've watched on this subject. In many of those, the comments about ESG state reductively that ESG is a scam, without really getting into the nuts and bolts that support that assertion.

I've been interested in investing in ESG for years, but instead have been doing my own stock picking. And that row has been a tough one to hoe. My success has yielded me income, but it's also put me into some difficult positions. Right now, my wind and solar stocks are in the tank, and I don't know how long before they bounce back. Some may not.

I know I"m missing out on profits by not investing in an S&P 500 index fund, or other mutual funds that invest in the broader market or in sectors. But I refuse to follow the crowd based on what I know is becoming of the world relative to ecosystems and climate. I cannot and will not give in to investing with the herd, while sticking my head in the sand.

[KHAMDEYEVBI]

I so much like the tone of your videos. Nice presentation. References to actual case studies. Good visualization. Keep up the excellent work!

[gerben]

Awesome video Ben! In my country (The Netherlands) we strangely have an opposite situation for costs. We only have ESG screened index funds, there even are no non ESG screened index funds! :) We can buy non screened index funds from other European countries. But that makes them less tax efficient which results in about 0.30% extra costs per year.

Our screened index funds typically exclude 4-8% of the market cap weight of the MSCI world index. Returns have been 0.20 - 0.30% better per year for them for the last 6-10 years. But I understand from your video that that might be different in the future. Al screened funds don’t reflect my views and values fully btw.

A cost difference of 30 basis points is quite substantial. Although they don’t reflect my values I’m still tempting to go for them to lower my costs. What is your view on this? Thanks!

[allenc]

How come you always manage to release a video regarding topics I am currently pondering or conflicting about... I learned a lot from your videos, thanks Ben.

[mathiasbierberg-vinzents]

Great video, I am currently writing a paper on ESG investing and this is slot of great information.
Just a question, if we expect more people to start ESG investing, couldn't this mean that the stocks are with high ESG score can be push up more than expected, and because of this, in reality generate a higher return than what is to be expected, because of the crowding effect?

[alexfloyd]

I see nothing wrong with just investing in broad index and then do your own "socially conscious investing" with the resulting money by buying products from companies you support and avoiding companies you don't support. Go with the market for investing, go with your conscious for consumption. I feel like the line only really starts to blur if you have so much money that most of your social impact comes from your capital, in which case, I don't know, start a charity?

[antonmaier]

You are part of the new class of web-content right next to the exceptional new kinds of content.

[grftube]

As long as it’s a conscious investor decision, and knowing all the trade-offs involved, sustainable investing is ok. What I hate, especially in Europe, is that some brokers prevent you from investing in specific companies/ETFs because they consider them “unethical” or "risky". They treat investors like kids who don't know what they do and need to be watched over. I don’t think that happens in US or Canada (I may be wrong).

[fragranceman]

So I’ve looked maybe you’ve done a video covering this already but couldn’t find it. My question is what is the benefit of having a retirement account like 401k, IRA etc. verses running an Individual investment account where I make all the stock purchases. With this being said these stocks will be held greater than a year and used for retirement. My second question would be is rebalancing my portfolio necessary? In my opinion it’s not because in my case I don’t have a set allocation for bonds and equities. I would like to hear your view about my opinion. Thank you

[mdalie]

Great explanation. The video hints to this but if an investor were to exclude all companies which do things they deem morally wrong, they would essentially be unable to invest in ANY large company.
Carbon emissions, land clearing, unethical labour practices, tax evasion, pollution etc...
Pretty much every listing on the S&P 500 is guilty of at least one of these.
My opinion is that business regulation is the responsibility of governments and international organisations, not individual consumers and investors.

[chrisdc]

Hi Ben. Great discussion on the topic of ESG. As usual its delivered in a common sense way that explains a complex topic in simple terms for investors. Speaking of complicated. Have you ever thought of taking on the topic of "Equal Weight" indexing. I have noticed a few papers about why equal weighting outperforms. Apparently there is a mathematical explanation. Or is there ? I'm betting you can explain it.