Not All ESG Funds Are Environmentally Responsible

The trustworthiness of environmental, social and governance (ESG) funds is questioned. Although many funds claim to be sustainable, most of them feature large amounts of carbon emissions. Furthermore, no single climate fund is fully aligned with the goals of the 2015 Paris Agreement on climate change, a study by ESG Book revealed.

ESG Book explained that although the number of ESG and climate funds has increased significantly in recent years, especially as the market demand for more responsible products and companies kept rising, most of these efforts are not delivering the expected results. Of the 515 funds analyzed, 73 had an emission intensity index above the average. In addition, 15 funds exceeded 400 tons of carbon dioxide emissions, more than double the average. The study also revealed that many seemingly climate-focused funds continue to invest in fossil fuels.

“If you are an investor in a fund, you can see your daily financial performance, but hardly anybody tells you ‘Is the fund actually delivering on (its) climate targets?’,” Daniel Klier, CEO, ESG Book, told Reuters.

Faced with this problem, Klier advocated the need to label funds in a better way and gain a deeper understanding of market dynamics; even if companies consider more ESG issues, it does not mean that they are improving their performance.

In Mexico, experts have said that no significant progress has been made on key ESG issues in recent years. This happened mainly due to the reforms of President López Obrador that aim to alter the energy industry, as well as the lack of regulation on social issues. For instance, sourcing clean energy has become more difficult as the president hampered private energy developments in his mission to bolster state utility CFE. According to BNamericas, of the seven main mining companies operating in Mexico, Fresnillo, Newmont, Torex Gold, Alamos Gold, Equinox Gold, Pan American Silver and Endeavor Silver, only four achieved minor reductions in greenhouse gas emissions in 2021 compared to 2020. Meanwhile, two of them reported small variations or increases.

Given that the environmental and social uncertainty generated by the government is not expected to improve in the short term, experts stressed that mining companies must fill this gap and, above all, demonstrate that mining is an ally of communities and can be highly environmentally responsible.

“Today, it is crucial for companies to have a clear and measurable ESG strategy. The coming years will be critical toward shaping the mining of the future and the mining we all want to live. Those companies that manage to read this paradigm shift in the industry, from compliance to performance, will dominate the industry in the coming years,” José Tovar, Community Relations Manager, Alamos Gold, told MBN.