ESG funds discover S and G count for something

Trouble with ESG investing thrown into sharp relief by events in eastern Europe

Just more than five weeks ago, the world’s largest asset manager, BlackRock, said it would push companies to commit to net-zero emissions by 2050 and raised the prospect of dumping companies that failed to do so from its actively-managed funds.

This was no niche player: it was a statement that ESG investing had moved firmly mainstream. Or was it?

ESG – or environmental, social and governance – investing has become a buzzword in recent times but, in the wake of Russia's invasion of Ukraine last week, several observers have pointed out that, all too often, the focus has been exclusively on environmental or sustainability goals, with little or no attention to the stated aims of social investing or a focus on sound governance.

This week, Blackrock came under scrutiny over its investments in Russia and just how that sat with the ESG mantle it had assumed so recently. It was not alone, Vanguard was another high-profile name with strong stated ESG credentials. Both were named among the five top western holders of Russia sovereign debt.


Given the bellicose behaviour of the Putin regime towards Ukraine over a number of years – as evidence by the annexing of Crimea – governance has clearly been an issue that has slipped off the radar for some time.

And that's not the only trouble with ESG investing that has been thrown into sharp relief by events in eastern Europe over the past 10 days. There is also the concern that ESG means as many different things as there are people discussing it.


This week, investment professionals were questioning whether, in light of the need to defend Ukraine, defence stocks – previously anathema to ESG funds – could rightly be considered for ESG investment.

That the discussion is happening at all shows how fluid the nature of ESG can be depending on the context in which it is framed. Financial Times columnist Merryn Somerset Webb who has little time for ESG, or "exclusionary" investment, this week highlighted the contradiction in refusing to invest in fossil fuels and mining "because they are dirty but also relying on both to drive the global economy and the energy transition".

Invited to a seminar on how ESG investing with “continue to evolve”, she said: “It will continue to evolve until one way or another it encompasses everything. Then, like everything that has tried to be all things to all men before, it will mean nothing.”

Meaningless, greenwashing or simply a handy marketing tool? If ESG is to have a future, there needs to be some consistency about what it does and does not stand for.