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‘Lazy’ ESG Fund Managers Are Caught Swimming Naked as SVB Exposes

Bloomberg | Alastair Marsh and Saijel Kishan | Mar 14, 2023

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Image: CFL/ESG

Another market meltdown, and another costly lesson for ESG

  • About 915 funds registered under European Union regulations as either “promoting” ESG or declaring it as their “objective” are exposed — directly or indirectly — to the now-collapsed bank, according to data compiled by Bloomberg.
    • On Tuesday, it emerged that SVB’s lack of a chief risk officer for much of last year is being examined by the Federal Reserve as part of its probe of the bank’s failure, two people familiar with the matter said.

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  • For ESG investors, SVB appeared to tick several boxes. The bank was a big lender to renewable energy companies, a favorite among ESG managers on the lookout for low carbon footprints. But when it came to governance risks, fund managers seem to have been less attentive.
    • For the ESG investment industry, the collapse of SVB may go down as a textbook case of what happens when an asset manager tries to build a climate portfolio without doing proper due diligence on social and governance risks.
    • ESG fund managers often tout their engagement strategies, whereby they meet with portfolio companies and go over the risks that need addressing. But given SVB’s “A” rating at MSCI Inc., and a “Controversy Level” of zero at Sustainalytics, it’s likely that portfolio bosses didn’t think the bank was in urgent need of improvement.

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