Should ESG Funds Buy "Bad" Companies?

Sectors like oil and tobacco are excluded from sustainable funds for obvious reasons, but investors may miss out if they are too strict with their ethical criteria

James Gard 20 June, 2019 | 9:15AM

Cigarettes

Is it better for sustainable fund managers to own oil, tobacco and defence firms in their portfolios or try to exclude them entirely? Many investors may feel strongly that if they are investing in an ESG or impact fund then it should exclude certain “unethical” sectors.

But companies in controversial areas, such as BP (BP.) and Philip Morris (PM), are investing billions in improving their public image and trying to “future-proof” their business against inevitable change. Investors who shun such firms may miss out if these efforts pay off in the long-term.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
BAE Systems PLC536.00 GBX1.67
BP PLC311.30 GBX1.22
Philip Morris International Inc79.69 USD1.23

About Author

James Gard  is content editor for Morningstar.co.uk

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