Tesla CEO Elon Musk has repeatedly angered, and Wall Street’s “popular fried chicken” investment field – ESG (environmental, social and governance) is also facing increasing regulatory pressure.
Goldman Sachs is facing an investigation by the U.S. Securities and Exchange Commission (SEC) for its use of ESG investing, sources said. The investigation focused on the mutual fund business of Goldman’s asset management arm, with the SEC seeking to understand whether some of the funds’ investments violated ESG standards promised in marketing materials. Given that the SEC has yet to regulate ESG requirements, the investigation may focus on whether Goldman’s disclosures to clients accurately represent its investment practices.
Spokespeople for Goldman Sachs and the SEC have since declined to comment on the news. This is another Wall Street giant being investigated for ESG-related investments after Deutsche Bank, Germany’s largest bank.
On May 31 this year, German police raided the offices of Deutsche Bank and its subsidiary Deutsche Asset Management (DWS), searching for allegations of so-called “greenwashing” in DWS’ ESG funds. While DWS has denied the allegations, its CEO Asoka Wöhrmann announced his resignation after the raid.
Decisions on green investment are often combined with ESG standards. Investors can help companies or projects that are beneficial to the environment and society to quickly raise funds by purchasing green stocks, green bonds, and green funds. ESG ratings relate to corporate environmental protection, social responsibility and corporate governance effectiveness, not financial performance. ESG investment funds currently account for 10% of total global assets, and ESG is seen as an investment area that will set off a third wave of change.
But the investigation of Deutsche Bank and Goldman Sachs undoubtedly shows that the regulators are paying more attention to the ESG field. A Wall Street News article last month pointed out that the SEC made ESG one of its key areas of focus this year, and sent a clear message about sustainable investing: investment firms need to fully disclose the meaning of their ESG-related terms. This poses a challenge for many ESG investment funds.
Media commentary said that at a time when high-profile institutions such as Deutsche Bank and Goldman Sachs are also carrying the stigma of allegedly “floating green”, retail investors are slowly starting to pay attention to the problems in the ESG industry masked by the market size of 40 trillion US dollars. .
Morningstar data shows investor appetite for ESG is cooling after three consecutive years of massive funding. Global inflows into ESG funds fell 36% in the first quarter of this year, the worst performance so far before the outbreak. Inflows to such funds continued to decline in April, Bank of America analysts found. Bloomberg industry analysis estimates that in May, US ESG ETFs also suffered the largest monthly redemption in history, with an outflow of $200 million in the month.
With investor redemption comes poor performance. ESG equity funds in Europe have lost an average of 14% through the second week of the month, while the pan-European stock index Euro Stoxx 600 has lost 11% over the same period. Such ESG funds in the U.S. lost an average of 16% over the same period, outperforming the S&P 500 only slightly. BlackRock’s iShares ESG Aware MSCI USA (ESGU), the world’s largest ESG ETF at $20.9 billion, lost nearly 25% in one quarter this year, worse than the MSCI World Index.
Some media pointed out that when ordinary investors doubt whether ESG investment is worth the money, the new regulatory framework will allow their views to have a greater impact on the funds management industry. In Europe, where local ESG regulations are being regarded globally as the benchmark, from August this year the EU will require financial advisers to ensure retail investors know exactly what to expect from their ESG holdings, even if doing so could send clients to rivals .
According to the media, the above changes apply to all fund managers serving European investors, whether they are based in the United States or Europe. It may affect the regulatory framework in jurisdictions outside Europe.