Skip to main content

For regulatory purpose, the inflow magnet term “ESG” is essentially meaningless. Those bandying it about merely have to define “environmental, social and governance,” put that definition and the many, many exceptions you’re allowed to make in spite of it in the small print, and watch the money roll in.

Seems simple enough. And yet those rules—the very rules that the money managers write for themselves—are somehow impossible to follow in practice. And not, it seems, just when malfunctioning robots are doing the work, or when Deutsche Bank is predictably fucking up.

It’s a “real wake-up call,” says Desiree Fixler, the former DWS executive who blew the whistle on her company for allegedly making misleading statements about ESG investing in its 2020 annual report (DWS denies wrongdoing). “I still believe in sustainable investing, but the bureaucrats and marketers took over ESG and now it’s been diluted to a state of meaninglessness,” she says.

Still, even then, Goldman Sachs (possibly, allegedly) can’t get the simple (and legal!) act of greenwashing right.

The SEC’s civil investigation is focused on Goldman’s mutual-funds business, the people said, and the firm manages at least four funds that have clean-energy or ESG in their names…. Because the SEC doesn’t yet have rules that dictate what ESG investing means or requires, any enforcement action would need to focus on a fund’s past disclosure, and whether its investing practices materially deviated from what it advertised to shareholders.

If, in fact, Goldman did that, it’s a pretty impressive feat, because a drunk, chain-smoking driver could drive a gas-guzzling truck filled with coal and loaded AR-15s through the loopholes GSAM carved into its ESG standards.

Goldman says in regulatory documents that its ESG fund aims to keep 80% of its net assets in stocks issued by companies that meet the fund manager’s criteria…. Goldman says holdings in the U.S. Equity ESG Fund undergo an ESG analysis but reserves the right to invest in some companies without such a screening. It can also invest up to 20% of its net assets in stocks that deviate from its ESG standards.

Of course, given the lucrative nature of the ESG market, the industry is eager to prove that it does, well, something. And the hippies at the Managed Funds Association think they've done just that, and for short-selling, to boot.

A study published by the Managed Funds Association indicates that targeted short-selling campaigns could slash up to $140 billion in capital expenditure at the biggest carbon emitters in the S&P 500 Index by pressuring them to clean up their acts…. The analysis found that the increase in the supply of a stock caused by short-selling would result in a lower share price and an average relative increase in a company’s weighted average cost of capital of between 1% and 3%.

That in turn would prompt companies to shift their capital expenditure by as much as 8%, equivalent to $140 billion, the study found.

SEC Is Investigating Goldman Sachs Over ESG Funds [WSJ]
RIP ESG? [FT]
Hedge Funds Chasing ESG Billions Get Help From Researchers [Bloomberg]

For more of the latest in litigation, regulation, deals and financial services trends, sign up for Finance Docket, a partnership between Breaking Media publications Above the Law and Dealbreaker.

Related

Deutsche Bank boom

Deutsche Bank Lie About Progress In A Key Area? Impossible!

The Germans are alleged to not be taking ESG terribly seriously.

commerz

Commerz, Deutsche Money Management Arm Fire Auditor In Case They Decide To Sue It

Anyone can audit them, but there’s only one auditor they’re thinking about suing.

(Getty Images)

Literally No One Likes SEC Hedge Fund Secrecy Plan, Except The People Who Run The SEC

That’s a big, “Thanks, but no thanks” from the hedge funds on getting rid of most 13Fs.

gensler

Will There Be Anything Left For Gary Gensler To Do At The SEC?

Interim chief Allison Herren Lee keeps taking things off his plate.

By US government [Public domain], via Wikimedia Commons

The Latest Standard Wall Street Practice That Is Apparently Rife With Fraud

Block trading is getting the old Garland-Gensler double-team.