Peter Krull holds the opinion that environmental, social and governance (ESG) politicization is not a sustainable move. Krull, a partner and director of sustainable investing at Earth Equity Advisors, was recently named “Advisor of the Year” on ESG/Responsible Investing at the inaugural InvestmentNews Awards held last month.
Krull believes that investors are being deceived with how the terminology is used, because ESG simply examines risks to a company from the metrics of environmental, social and governance (ESG). Sustainable investing, he claims, is a more favorable way to look at investing.
Krull explained that the industry had shifted to hardcore ESG investing from sustainable responsible investing as parties wanted to have their data quantified. While at first the objective was parties seeing what figures are linked to ESG, it soon morphed into a political matter.
Krull argued that ESG was also politicized around issues on the social side when companies began making stands on diversity, equity and inclusion (“DEI”) initiatives and abortion rights. This saw more companies move away from using the term “ESG,” with companies or providers now adding some ESG metrics to a traditional index. This, Krull said, didn’t make the results sustainable.
Krull highlighted the importance of investors knowing both the ESG risk metrics and traditional financial metrics, particularly when it came to understanding what the terms meant.
Latest figures by Morningstar show that there are nearly 650 funds that have labelled themselves “sustainable.” This is even though their holdings have nothing sustainable about them. According to Krull, sustainable means to own and be solution providers. He notes that ESG does not, in fact, measure the impact a company has on its environment, society and governance.
Instead, ESG measures social impacts on the company, environmental impacts on the company and governance impacts on the company, which makes it a risk measure.
To make it easier for investors to identify companies that are sustainable, Krull and his team at Earth Equity Advisors have come up with a portfolio that examines the different industries, companies and sectors that will lead the world into a more equitable and resource-efficient economy.
To put it together, the team explored companies that could be the next market leaders in the economy, helping manage climate change’s effects while also providing solutions to combat this global issue. As an example, Krull cited how in the last 6–12 months, team members observed an increase in insurance rates due to a link between the cost of insuring housing and facilities and climate risk.
As the definition of ESG evolves in tune with existing sentiment, companies such as Coyuchi Inc. could find themselves having to come up with their own in-house parameters for measuring and monitoring their operations to suit environmental, societal and governance targets.
NOTE TO INVESTORS: The latest news and updates relating to Coyuchi Inc. are available in the company’s newsroom at https://ibn.fm/COYU
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