The funds, which market themselves as investing in companies with strong environmental, social and governance practices, have taken in record amounts
By Akane Otani Nov. 11, 2019 5:30 am ET Funds with a focus on socially responsible investing are enjoying a record year of inflows. But many such portfolios aren’t as clean as investors might expect.
Vanguard Group’s FTSE Social Index Fund is meant to track an index excluding companies with “significant controversies regarding environmental pollution or severe damage to ecosystems.” Both that fund and another large ESG fund operated by Xtrackers include Occidental Petroleum Corp. , which in 2015 paid Peruvian indigenous villagers an undisclosed sum to settle a suit accusing it of contaminating the Amazon.
“The biggest frustration on behalf of investors is there’s no standardization within this industry,” said Rebecca Corbin, founder of capital-markets research and advisory firm Corbin Advisors. One simple explanation: No asset manager wants to deliver subpar returns. Energy stocks have been a losing bet this year. But research from the Federal Reserve Board has shown U.S. recessions have often followed periods when oil prices have run up rapidly. During those times, energy shares have often been among the few sectors to reliably produce gains—making them an important group for asset managers, said Nicholas Colas, founder of DataTrek Research.
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