Does Sustainable Investing Really Help the Environment?
Experts argue whether green investing is benefitting Wall Street or the planet.
Experts argue whether green investing is benefitting Wall Street or the planet.
Sustainable investing has been a wild success. For Wall Street, at least.
Mutual funds and exchange-traded funds that focus on ESG (environmental, social, and governance issues) have made a lot of money for investment firms. Investors worried about climate change, in particular, have poured money into such funds, even though the funds charge higher fees than standard funds. More money is expected to flow in. The Labor Department has proposed a rule that would make it easier for investors to buy ESG funds in their 401(k) plans.
For some investors, it is purely a financial bet on a popular sector. Many others are hoping that the billions of dollars flowing into ESG will create positive change for the environment and other causes. But whether Wall Street or Mother Nature will be the ultimate beneficiary of all of these ESG dollars is a difficult question to answer.
We asked two experts to weigh in.
Tariq Fancy, chief executive officer of the Rumie Initiative, an education-technology nonprofit, has been a critic of ESG investing since leaving his job as chief investment officer for sustainable investing at BlackRock. Mr. Fancy says that much needs to be done to address climate change and prevent environmental disasters in the future. He says he doesn’t believe that ESG investing and financial products associated with it are a real help in achieving those goals. In his writings, including an online essay in August, “The Secret Diary of a Sustainable Investor,” he argues that funds that focus on ESG issues are profitable for Wall Street—but amount to a “dangerous placebo” that doesn’t cure the planet’s problems.
Alex Edmans, professor of finance at London Business School and an adviser on responsible investing to Royal London Asset Management and other investment firms, disagrees that the investing efforts represented by ESG funds and other private-investment-based strategies are as pointless as Mr. Fancy says. Dr. Edmans says that while he sees merit in some of Mr. Fancy’s criticisms, they are more sweeping and blanket than justified.
Here are edited excerpts of their discussion, conducted by email:
WSJ:You both have been advocates of sustainable investing, though you disagree about Wall Street’s role. Overall, do you feel better about the fate of the planet now that Wall Street has carved a niche for ESG?
MR. FANCY: Unfortunately, I feel worse about it. Is ESG good for the industry? Undoubtedly yes. It presents a lucrative new opportunity to raise funds and fees. And as an added bonus, it keeps government regulation to address the climate crisis at bay through feeding us yet another narrative in which our answers are solved by the “free market” magically self-correcting.
But good for the planet? I think even Alex would agree that there is no compelling empirical evidence that ESG investing mitigates climate change. Outside of a very small minority of private, long-term funds, such as venture-capital funds that back promising technological solutions to the climate crisis, the vast majority of funds marketed as ESG and sustainable funds today—as well as the nonbinding practice of ESG integration into existing investment processes—can’t point to any real-world impact that would not have otherwise occurred.
DR. EDMANS: I feel modestly better about it. Only modestly better, because Tariq is right that divestment has a negligible effect on company behaviour. But still better, because Tariq’s essay in August ignored the key mechanism through which sustainable investing has impact—engaging with companies on ESG issues. We’ve seen such impact with upstart hedge fund Engine No. 1 getting three climate-conscious directors appointed to Exxon’s board, and this isn’t just an isolated case. Indeed, careful research shows that engagement by index funds, hedge funds and investor collective-action groups creates shared value for both shareholders and society. In particular, activism on ESG issues creates shareholder value as a byproduct, and activism to enhance long-term shareholder value ends up improving ESG.
MR. FANCY: Given the scale of the challenge presented by the climate crisis, we need to stay focused on the bigger picture: The ESG industry may be developing data sets, standards, and ushering in a wave of talented young people to work with them, but these tools are clearly not being combined in the right way right now—given that ESG assets and marketing spin are increasing rapidly alongside carbon emissions, inequality and a host of problems they’re meant to do something about. Are there a few isolated areas where ESG can create win-wins? Sure. But overall, the ESG industry today consists of products that have higher fees but little or no impact and narratives that mislead the public and delay the government reforms we need.
The small wins that Alex highlights, insofar as they exist, are nowhere near sufficient to rapidly decarbonize our economy on the timeline required, which only governments can catalyze through rapidly adjusting the incentives of all the players in the system, for example through a price on carbon. I refer to ESG’s small, mainly marketing wins as “giving wheatgrass to a cancer patient.” And there is now evidence emerging that they may be a giant societal placebo that lowers the likelihood of us following expert recommendations to address the climate crisis. In that sense, the wheatgrass isn’t harmless; it’s delaying the chemotherapy that science tells us we need immediately.
If you sell people a win-win fantasy, they’re less likely to accept the truth: Fighting climate change is going to require an economic transformation that will of course 100% involve the private sector, but must be sparked by government, including through taxes and regulation, and is going to be very difficult and cost us a lot of money.
WSJ:Dr. Edmans, you seem to have more faith than Mr. Fancy in the role of investors in helping the planet.
DR. EDMANS: Tariq is correct that government intervention is key. However, it’s not either/or. Investors launching sustainable funds does not prevent government action; in contrast, doing so encourages action by shifting the so-called Overton window—the range of ideas that is currently acceptable in the political mainstream. Moreover, many investors directly call for government action. In July, investors representing over $6 trillion in assets called for a global carbon price.
MR. FANCY: The only people shifting the Overton window toward a robust response to the climate crisis are brave activists, climate scientists, climate economists and other experts who are telling us that saving the planet will involve taking sacrifices, and needs to happen quickly. The Overton window wasn’t shifted by the ESG industry; on the contrary, today it’s unfortunately being wasted by it by diverting the growing momentum for climate action into yet another dodgy free-markets-self-correct fable.
WSJ: Mr. Fancy in his August essay made the analogy that capitalism is like a basketball game: Each is a competition to score (whether points or profits), and sportsmanship happens only when it’s required under the rules. The implication is that Wall Street doesn’t really have its heart in helping the planet.
DR. EDMANS: Many ESG advocates immediately got on the defensive and started arguing why Tariq’s essay is wrong. But we should first consider the possibility that it might be right. Relying on companies/investors to do the right thing without government action is as naive as having a professional basketball league without rules or referees, but clubs writing glossy purpose statements promising to play fair.
However, the analogy is imperfect in two ways. First, basketball is a zero-sum game. One team can only win if the other loses, and so instances of sportsmanship will be limited. But, in many cases, business is a positive-sum game. Rigorous evidence shows that “sportsmanship” to your stakeholders can also benefit shareholders, so it’s in investors’ own interest to take stakeholders seriously. For example, companies that treat their employees well outperformed their peers in total shareholder returns by a range of 2.3 to 3.8 percentage points a year over a 28-year period—that’s 89 points to 184 compounded. Similar results hold for companies that deliver value to customers, the environment and material stakeholders. Second, many key ESG dimensions can’t be regulated, such as corporate culture—hence the role for investors to hold companies to account.
There are certainly institutional investors who claim that their sustainability actions are a substitute for government action, and who launch ESG products with bold claims of impact to dupe unsuspecting clients to pay fat fees for them. Tariq’s essay has a lot of value in calling them out. However, most true ESG investors don’t do this. They don’t make unsupported claims of impact; their marketing argues that ESG’s main effect is to improve long-term returns rather than change company behaviour. Investors who are late to the ESG game are suddenly jumping on the bandwagon and making a lot of noise in a desperate attempt to play catch-up. Tariq is right to expose them, just like those who promote faddish weight-loss programs should be exposed—but this doesn’t mean the entire weight-loss industry is a ruse.
MR. FANCY: There are indeed areas where small win-wins exist, and where shareholder value can be enhanced by serving all stakeholders. I used to eagerly trumpet these areas in my previous role in sustainable investing. I’ve received an avalanche of messages from people thanking me for saying something they also felt needed to be said. Yet few want to say that out loud themselves, which I understand: I couldn’t have said the same things while I was still in the industry.
I think the ESG industry has the potential to move from serving as a dangerous placebo to playing a leading role in this change, but that requires us having an open and honest debate about how to arrive at a more rigorous and honest ESG 2.0.
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Gold is outshining stocks, bonds and crypto. Here’s what’s driving the surge—and how to get in.
Give gold bugs their due. The yellow metal has been a light in the investing darkness. At a recent $3,406 per troy ounce, it’s up 30% this year, to the envy of stock, bond, and Bitcoin holders. Cash-flow purists will call this a flash in the pan, but they should look again. Over the past 20 years, SPDR Gold Shares , an exchange-traded fund, has surged 630%—85 points more than SPDR S&P 500 , which tracks shares of the biggest U.S. companies.
That isn’t supposed to happen. If businesses couldn’t be expected to outperform an unthinking metal over decades, shareholders would demand that they cease operations and hoard bullion instead. So, what’s going on? If this were gasoline or Nike shoes or Nvidia chips, we would look to supply versus demand. With immutable gold, nearly every ounce that has ever been found is still around somewhere, so price action is mostly about demand. That has been ravenous and broad since 2022.
That year, the U.S. and dozens of allies placed sweeping sanctions on Russia, including its largest banks, and China went on a bullion spree. Its buying has since cooled, but other central banks have stepped in. Perhaps this is unsurprising, in light of a decades-long diversification by finance ministers away from the U.S. dollar, which is down to 57% of foreign reserves from over 70% in 2000. But the recent uptick in gold stockpiling looks to JPMorgan Chase , the world’s largest bullion dealer, like a debasement trade. Investors are nervous about President Donald Trump’s tariffs, his browbeating of the Federal Reserve Chairman over interest rates, and blowout U.S. deficits.
It isn’t just bankers. Demand among individuals for gold bars and coins has been surging, with some dealers experiencing sporadic shortages. Gold ETFs were bucking the trend, but flows there have turned solidly positive since last summer, including recently in China. All told, there is now an estimated $4 trillion worth of gold held by central banks, and $5 trillion by private investors. Calculated against $260 trillion for all financial assets, including stocks, bonds, cash, and alternatives, that works out to a global gold portfolio allocation of 3.5%, a record.
What’s next? BofA Securities says that central banks have room for much more gold buying, and that China’s insurance companies are likely to dabble, too. RBC Capital Markets analyst Chris Louney says ETFs could drive demand growth from here, especially if angst reigns. “Gold is that asset of last resort…the part of the investing universe that investors really look for when they have a lot of questions elsewhere,” he says.
Russ Koesterich, a portfolio manager for BlackRock , a major player in ETFs including the iShares Gold Trust , says that gold has proven itself as a store of value, and deserves a 2% to 4% weighting for most investors. “I think it’s a tough call to say, ‘Would you chase it here?’ ” he says. “There have been some pullbacks. Those might represent a good opportunity, particularly for people who don’t have any exposure.”
Daniel Major, who covers materials stocks for UBS , points out that gold miners mostly haven’t wrapped themselves in glory in recent years with their dealmaking and asset management. As a result, a major index for the group is trading 30% below pre-Covid levels relative to earnings. UBS increased its 2026 gold price target by 23%, to $3,500 per troy ounce, before gold’s latest lurch higher. Many miners are producing at a cost of $1,200 to $2,000. Major has bumped up earnings estimates across his coverage. “I think we’re gonna see further upward revisions to consensus earnings,” he says. “This is what’s attractive about the gold space right now.”
Major’s favorite gold stocks are Barrick Gold , Newmont , and Endeavour Mining . More on those in a moment. We also have thoughts on how not to buy gold—and what not to expect it to do: Don’t count on it to keep beating stocks long term, or to provide precise short-term protection from inflation spikes and stock swoons. But first, a little history, chemistry, and rules of the yellow brick road.
The first gold coins of reliable weight and purity featured a lion and bull stamped on the face, and were minted at the order of King Croesus of Lydia, in modern-day Turkey, around 550 B.C. But by then, gold had been used as a show of riches for thousands of years. Ancient Egyptians called gold the flesh of the gods, and laid the boy King Tutankhamen to rest in a gold coffin weighing 243 pounds. The Old Testament says that under King Solomon, gold in Jerusalem was as common as stone. Allow for literary license; silicon, an element in most stones, is 28.2% of the Earth’s crust, whereas gold is 0.0000004%.
Marco Polo described palace walls in China covered with gold. Mansa Musa I of Mali in West Africa, on a pilgrimage to Mecca in 1324, is said to have splashed so much gold around Cairo on the way that he crashed the local price by 20%, and it took 12 years to recover. To Montezuma, the Aztec king whose gold lured Cortés from Spain, the metal was called, as it still is by some in Central Mexico, teocuitlatl —literally, god excrement. Golden eras, gold medals, the Golden Rule, and golden calf—so deep is the historical association between gold and wealth, excellence, and vice that it seems to have a mystical hold on humanity. In fact, it’s more a matter of chemical inevitability.
Trade and savings are easier with money. Pick one for the job from the 118 known elements. Years ago on National Public Radio, Columbia University chemist Sanat Kumar used a process of elimination. Best to avoid elements that are cumbersome gases or liquids at room temperature. Stay away from the highly reactive columns I and II on the periodic table—we can’t have lithium ducats bursting into flame. Money should be rare, unlike zinc, which pennies are made from, but not too rare, unlike iridium, used for aircraft spark plugs. It shouldn’t be poisonous like arsenic or radioactive like radium—that rules out more elements than you might think. Of the handful that are left, eliminate any that weren’t discovered until recent centuries, or whose melting points were too high for early furnaces.
That leaves silver and gold. Silver tarnishes, but rarer, noble gold holds its luster. It is malleable enough to pound into sheets so thin that light will shine through. And, despite the best efforts of Isaac Newton and other would-be alchemists, it cannot be artificially created—profitably, anyhow. Technically, there is something called nuclear transmutation. If you can free a proton from mercury’s nucleus or insert one into platinum’s, you’ll end up with a nucleus with 79 protons, and that’s gold. Scientists did just that more than 80 years ago using mercury and a particle accelerator. But what little gold they produced was radioactive. If you think you can do better, you’ll likely need a nuclear reactor to prove it, but a large gold mine is one-fifth the cost, and we have to believe the permitting is easier.
We passed over copper due to commonness, but it has become too valuable to use for pennies. The 95% copper content of a pre-1982 penny is worth about three cents today. The equivalent amount of silver goes for $3.10, and gold, more than $320. But the three trade in different units. A pound of copper is up 17% this year, at $4.72. Silver and gold are typically quoted per troy ounce, a measure of hazy origin and clear tediousness, which is 9.7% heavier than a regular ounce. A troy ounce of silver is $32.70, up 13% this year.
Confused? This won’t help: The purity of investment gold, called its fineness, is measured in either parts per thousand or on a 24-point karat scale. A karat is different from a carat, the gemstone weight, but our friends in the U.K.—who adopted troy ounces in the 15th century—often spell both words with a “c.” Gold bricks like the ones central banks swap are called Good Delivery bars, and weigh 400 troy ounces, give or take, worth more than $1.3 million. If you buy a few, lift with your legs; each weighs a little over 27 regular pounds (as opposed to troy pounds, which, it pains us to note, are 12 troy ounces, not 16).
There are many options for smaller players, like Canadian Maple Leaf coins, which are 24-karat gold; South African Krugerrands, at 22 karats, and alloyed with copper for durability; and Gold American Eagles, 22 karats, with some silver and copper. Proof coins cost extra for their high polish, artistry, and limited runs, and may or may not become collectibles. Humbler-looking bullion coins are bought for their metal value. Prefer the latter if you aren’t a coin hobbyist. Avoid infomercials and stick with high-volume dealers. Even so, markups of 2% to 4% are common. Costco Wholesale , which sells gold in single troy ounce Swiss bars, charges 2%, but often runs out, and limits purchases to two bars per member a day. Factor in the cost of storage and insurance, too.
ETFs are more economical. For example, iShares Gold Trust costs 0.25%, not counting commissions. For long-term holders, as opposed to traders, there is a smaller fund called iShares Gold Trust Micro , which costs 0.09%.
Resist fleeing stocks for gold. The surprisingly long outperformance of gold is mostly a function of its recent run-up. From 1975 through last year, gold turned $1 invested into about $16, versus $348 for U.S. stocks. That starting point has a legal basis. President Franklin Roosevelt largely outlawed private gold ownership in 1933; President Richard Nixon delinked the dollar from gold in 1971; and President Gerald Ford made private ownership legal again at the end of 1974.
Gold has been a so-so inflation hedge over the past half-century, and at times a disappointing one. In 2022, when U.S. inflation peaked at a 40-year high of over 9%, the gold price went nowhere. The problem is that high inflation can prompt a sharp increase in interest rates. “If people can clip a 5% coupon on a T-bill, often they’d prefer to do that than have either a lump of metal or an ETF that doesn’t produce cash flow,” says BlackRock’s Koesterich.
Likewise, while gold has generally offset stock declines this year, it hasn’t always done so in the heat of the moment. Recall tariff “liberation day” early this month, which sent U.S. stocks down close to 11% in three days and pulled gold down nearly 5%. “This isn’t an uncommon scenario,” says RBC’s Louney. “When investors were losing elsewhere in their portfolio, gold was sold as well to cover those losses.”
Our top tip on how gold behaves is this: It doesn’t. People do the behaving, and they are appallingly unreliable. Use bonds as a stock market hedge. If they don’t work, fall back to patience. For inflation protection, think of assets that are a better match than gold for the goods and services that you buy every week. A diversified commodities fund has precious metals but also industrial ones, along with energy and grains. Treasury inflation-protected securities are explicitly linked to the consumer price index, which measures inflation for a theoretical individual whose buying patterns differ from your own, but are close enough.
Own a house. Stick with a workaday, reliable car. Yes, cars deteriorate. But so does nearly everything on a long enough timeline. Rely mostly on stocks, which represent businesses, which wouldn’t endure if they couldn’t turn raw inputs like commodities into something more profitable. There’s even a miner, Newmont, in the S&P 500.
Speaking of which, UBS’ Major recently upgraded both Canada’s Barrick and Denver-based Newmont from Neutral to Buy. “Both very much fall into that category of having a challenging recent track record,” he says. Newmont has lost 20% over the past three years while gold has gained 76%, which Major blames on difficult acquisitions and earnings shortfalls. Barrick, down 8%, has been in a dispute with Mali since 2023, when its government instituted a new mining code that gives it a greater share of profits. In recent days, authorities have shut the company’s offices in the capital city of Bamako over alleged nonpayment of taxes.
These are the sort of headaches that Krugerrands in a safe don’t produce. But Major calls expectations “adequately reset,” free cash flow attractive, and guidance achievable. Newmont, at 13 times next year’s earnings consensus, is selling assets, and Barrick, at 10 times, has healthy production growth.
Major also likes London-based, Toronto-listed Endeavour Mining , up 40% over the past three years and trading at nine times earnings, although he says it has “higher jurisdictional risk.” It is focused on West Africa, especially Burkina Faso, which had a coup d’état in 2022. You’d think the stock would be doing worse amid such political upheaval. Then again, Burkina Faso since 1966 has had eight coups, five coup attempts, and one street ousting of a president who tried to change the constitution to remain in power. That works out to an uprising every four years, on average.
Montezuma’s scatological name for gold might have been prescient, considering the sometimes-odious consequences for small countries that find it.
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