We see more and more ESG or Sustainable Investing Portfolios offered by the major players. But are they worth it? We took a deep dive for you.
Let us warn you already that it does not look good, not good at all! 😭
General results - socially responsible? Really?
First, we looked at As You Sow grades to check the true sustainability of portfolios*. All portfolios studied that labeled themselves as Socially Responsible or ESG perform poorly in relation to climate and environment. The average rating was a C both for oil and gas and deforestation 😱
Betterment and Wealthfront were the worst with heavy investments in oil and gas companies such as Chevron, ExxonMobil, or Conoco Philips. Digging deeper, we even found that Betterment invested in the highly controversial Russian oil & gas companies Lukoil and Gazprom.
Socially Responsible portfolios are not doing any better for private prisons. All solutions we studied poorly performed. Private prisons investments were in all socially responsible portfolios. This is stunning since they have a very poor track record for lobbying for harsher sentences, mass incarceration, racist behaviors, or profiting from incarcerated undocumented migrants. 😡
Only in terms of gender and tobacco did all those portfolios display good performance.
In this blog post, our goal was not to assess whether these portfolios were perfectly sustainable but whether they go in the “right direction”, meaning they should be top performers in Sustainable categories.
We used As you Sow “Invest your Values” tool to ensure maximum objectivity for several Sustainability dimensions (Fossil Fuel, Gender, Weapons, Deforestation, and Tobacco). We also screened ourselves the ETFs used by the main financial advisors to see how stringent were the ESG criteria and whether certain companies would raise a red flag such as banks with dubious practices or junk food providers.
When multiple ETFs were used for one portfolio, we took the median score to assess the solution. For Fidelity, Charles Schwab, and Vanguard, we used their most advertised ESG ETFs.
*As you Sow is an NGO that created an Invest your Values tool. It grades major funds on sustainability criteria on a grade from A - best in class to F - worst of the worst (exact methodology varies depending on the ESG criteria)