Why following the money led me to exit the market
A brief journey into owning my shit
According to financial planning experts, most people don’t have enough retirement savings to live the lifestyles they’ve grown accustomed to throughout their working lives.
But a lot of us have some retirement savings, usually invested through financial institutions.
Meanwhile, many people working in the field of environmental, social, and governance (ESG) talk about those financial institutions as key leverage points for sustainable finance. There is big money moving around in pensions—over $47 trillion USD, according to the Thinking Ahead Institute, one of many groups exploring the power of investment portfolios for positive change.
The thinking goes something like this: If we can put big money towards positive change, then we can make big, positive change. And if those of us who are saving for retirement can grow our savings while we’re at it, so much the better, right?
It makes good sense. It’s also completely delusional, as I found out when I followed the money.
It’s not delusional in the, Hmm. That’s not very sustainable, is it? sense. It’s delusional in the, This whole thing is a grotesque nightmare—I’m out, sense.
I put this up front so you know where I’m headed with this because once you see it, it will be hard to unsee.
If you prefer to believe that your hard-earned investments are humming along, ESG-aligned, climate-smart, and as socially responsible as you can get them—and maybe even out-pacing the market as ESG boosters tout—this will not be fun.
But owning one’s shit is rarely fun. And it turns out, we’ve been sold a lot of shit. (Or should I say, slaughterhouse flotation sludge. Wait, I’m getting ahead of myself.)
If, on the other hand, you are serious about positive change, this may help. It’s essential to be clear about what we’re changing—that’s the benefit of owning our own stuff, really—so we stop changing the wrong things and make the changes we want. And since we are the owners here, it is quite literally ours to change.
Below I provide details of my process so you can see I’m not hand-waving. This isn’t an opinion. This is what sustainable finance is actually doing, right now, touted as the solution while it perpetuates devastation. More bluntly, this is what your and my retirement savings is paying for.
To be clear, I’m in the same pile of doo-doo with you. So this is me, owning my shit.
Thankfully, we still have choices. I provide recommendations in every Matereal World post and this will be no exception. After leading us through a couple rabbit holes, I pull us out the other side and offer guidance—for decision-makers within the asset owning institutions, for ESG advisors, and for anyone saving for a future they want.
I did some homework on my retirement savings
My savings are invested with one of the original socially responsible investment (SRI) investment firms in Canada. It was Ethical Funds back in 2004, when I first rolled my straggling bits and bobs from previous employment into this pioneer of ESG investing. I didn’t do so because I’m particularly righteous—it’s simply where my new employer at the time, Canadian Business for Social Responsibility, had their group pension.
Twenty years later, Ethical Funds is now NEI, having merged with another investment company and rebranded. Over the ensuing years I have been receiving thick booklets in the mail with the Management Report and Fund Performance (MRFP) and audited statements of the various funds in my portfolio, like the one in the cover image of this article.
Usually as I pitch these booklets (unopened) into the recycling bin I think thoughts like, “I should take a closer look at these and see what’s what.”
But any time I tried to make sense of the info, I got bogged down and gave up. Yes, even though I used to produce similar material for fund managers and brokers at Manulife Financial before I stumbled into the sustainability field in 2003. And even though I now know a weird amount about ESG disclosures. I couldn’t get my mind to latch on to the documents.
Until the other day, that is, when I said to myself, “Enough excuses. Get in there. Figure it out.” I sat down with a 115-pager entitled, NEI Funds – MRFP and audited annual statements – September 30, 2023 that had been sitting on my kitchen table. And I figured it out.
If we were to judge by the cover we would conclude this is the most boring book ever. It turns out to be a gripping read, one that changed the arc of my own finances—for good.
The magic of rabbit holes and compound intrigue
In the beginning I was simply trying to read the darned thing—not to prove or disprove anything. But I had to translate the words from FinanceSpeak to plain English just to grasp what was what.
I started by reading about one of the handful funds in my portfolio, the NEI Global Sustainable Balanced Fund. That sounds good, right? Global. Sustainable. According to the MRFP, the fund increased in value by about 10% in the reporting year (Sept 2022 - Sept 2023), being valued at about $261 million (CAD) at the end of the reporting period. Pretty straightforward.
As I dug deeper, things started to get rabbit-holy.
The “Market Overview” was rich with fantastic flourishes of FinanceSpeak that practically anesthetize the reader.
“Resilient and growing end-market demand, as well as margin expansion stemming from abating supply chain challenges, led to outperformance from industrial energy efficiency and building energy efficiency holdings…”
—which could just as easily have said—
“Consumers used more energy, while energy providers paid their suppliers less, so the energy companies we invested in had higher profits.”
Another bright spot in FinanceSpeak:
“Relative underperformance on the equity side was a result of security selection…”
—garbled a simple observation—
“It turns out we didn’t pick things that made as much money as we wanted.”
In spite of the linguistic lockout, I persisted. I held fast to the questions: Where is my money invested? What is it doing? And why is this fund labeled “sustainable”? The printed book was short on answers so I hopped onto the online info on the fund to dig deeper.
I saw that NEI gets a five-globe Morningstar rating which is the highest ESG score from the rating agency. That sounds good, right?
[More on what those ratings indicate here. If you can find something worthy of the future we want in that rating, I beg you to share it. I’ll even give you and nine friends free lifetime subscriptions to the Matereal World plus a pair of handknit socks in the colour and size of your choice, if you can connect this rating to real, positive impact on the ground—beyond investors’ financial accounts. I’m listening and I want to be wrong here.]
On the website I learned that the NEI Global Sustainable Balanced Fund has 245 separate holdings across a range of sectors, including Government and Corporate, with Corporate breaking out across many more sub-sectors such as Basic Materials, Real Estate, etc. Some holdings are equities, i.e. the fund owns part of this entity (therefore I own it, too). Some are fixed income, i.e. debt finance instruments where the fund has loaned its—er… I mean, my and others’—money, and expects to get it back with interest.
It wasn’t clear which holdings have which type of investment. I downloaded the “Simplified Prospectus”, but the 253 pages didn’t have any of holdings listed, so it didn’t simplify anything for me. It did have a lot of very generic verbiage about ESG and Responsible Investing (pg 74 - 79), mind you.
At one point I called the number on the website to see if I could understand better. I was treated politely and had an engaging conversation but the person who responded was unable to answer my questions and needed to follow up. I haven’t heard back yet as of the time of writing. (Details in the Epilogue, below.)
But unanswered questions aside, the fund seems diversified at a glance, what with 245 holdings across sectors. Yet the number one holding (58.51% of the fund as of Dec 2023) is in the NEI Environmental Leaders Fund.
That’s right: the biggest holding this fund owns—er… I mean, we own—is part of another fund, managed by the same investment company. The rabbit hole forked in two.
Rabbit hole #1
I burrowed deeper to understand what NEI Environmental Leaders Fund is, this other fund that comprises the majority of the fund I thought I was reading about, to understand what “environmental leaders” might be up to.
Rabbit hole #2
I also tried to follow the twists and turns of financial flows among the other 244 holdings that make up 41.5% of the NEI Global Sustainable Balanced Fund, to get at least a sampling of the “sustainable” nature of this money.
Leaders in life-crushing growth
NEI Environmental Leaders Fund is more than five times bigger than the NEI Global Sustainable Balanced Fund, at $1.47 billion as at December 2023. I saw on the website that they are invested in 48 holdings (way fewer than the NEI Global Sustainable Balanced Fund’s 245…), and these ones were almost all traditional companies in the sense that I can look them up and read about their operations (as opposed to another fund of funds). These holdings also span the corporate sectors, with the exception of a few that are currencies (CAD, USD, and EUR) as opposed to companies.
Curiously, the “ESG Activities” listed for this environmentally leading fund (pg 36 of the printed MRFP) was less than a page, and was practically a cut-and-paste of the activities listed on pg 5 for the globally sustainable fund. It’s fascinating to me that this ESG info is so scant when there are hundreds of companies in the funds’ combined holdings, each of which has an ESG story unto itself.
For instance, they could have talked about the environmental leadership of, say, Trimble—a name I randomly picked from the list of Environmental Leaders Fund’s holdings to see what I might see. I learned about the company’s services in agriculture here, all of it dependent on amplifying large scale monoculture through automation, application of fertilizers, and “crop protection” (i.e. herbicides, pesticides, and fungicides).
Nothing in Trimble’s ESG reporting suggests anything strategic (or even unstrategic) about protecting biodiversity through their core business. Even their “Connect Forest” solutions, linked to the only mention of biodiversity in their reporting, promotes how they are “designed to mitigate risk, optimize production, and increase efficiency and control to meet the needs of end-to-end forestry operations and business processes”.
Newsflash: the forest, migratory birds, waterways, humans and non-humans who live in relation to the forest are not thriving as a result of this “efficiency and control”.
Trimble is not leading, environmentally speaking. Yet this is where the NEI Environmental Leaders Fund (and I) have been investing.
What about the ESG activities of International Flavors and Fragrances, another one of the Fund’s holdings? Even though IFF proudly declares that they embed sustainability into everything they do, that amounts to “managing impacts” (their words, not mine) by way of the usual corporate endeavours of reducing energy and water use, etc. I took a closer look at them because over the years I’ve worked with three different global flavour and fragrance industry players on sustainability strategy and reporting, as well as with numerous agricultural producers, and food and beverage companies in these ingredient manufacturers’ value chains. I know the industry well so I can navigate the materials fairly easily, and can also say with some confidence:
IFF’s purpose is to make money through the manufacture of molecules that enhance the smell and flavour of products so consumers (marketed to by IFF’s consumer products business customers) buy more stuff. The human health impacts are in the mix, but they are secondary. Truly life-affirming impacts are not on the radar beyond philanthropic initiatives and the usual energy efficiency and waste reduction (which is cost savings and/or GHG compliance).
In the words of IFF CEO Frank Clyburn during their most recent annual earnings call (Feb 2023),
“We will be disciplined to focus on the areas of our business that will best support our profitable growth, investing in R&D to get projects to market more efficiently, enhancing end-to-end productivity to drive improved costs and processes and further improving our supply chain to be more efficient.”
Translation: We will make more money by selling more stuff at a greater profit. Granted, a life-affirming economy is my vision, not NEI’s (and certainly not Trimble’s nor IFF’s). But this isn’t “environmentally leading”, much less truly serving life.
Regardless of my views on the non-leading nature of the ESG activities of their holdings, it’s curious to me that the one company both funds give prominence to in their brief “ESG Activities” is Danish energy company Ørsted. They state identically for both funds’ “ESG Activities” sections:
“Ørsted AS announced it was taking an impairment on a small cluster of offshore wind projects off the Northeast coast of the U.S., due to supply chain issues and higher interest rates, which led to an increase in the cost of capital and tariffs.”
Quick translation from FinanceSpeak to English before explaining why I find this curious:
“Ørsted’s windmills were going to be profitable but then things got more expensive than planned, so now they’re not looking as profitable as we thought.”
Why that’s an “ESG Activity” as opposed to context about a hit to the financial bottom line, I don’t understand. I’m picturing the producers of this MRFP and audited statement at NEI being an internal communications team with numerous other pieces to produce and not a lot vested in what’s written in them. A scenario plays out in my imagination:
Casting around for something to put in their annual document template, trying to hit a deadline to produce for their internal client, Legal/Compliance, (even though the final data came in late, again…) Communications Team Guy #1 asks his teammate,
“Hey, buddy, what should I put in this ‘ESG Activities’ section?”
“Huh? ESG Activities section?” Communications Team Guy #2 looks up from his phone, a bit distracted. “Um. I dunno. Isn’t that, like, renewable energy and stuff? Wasn’t there a thing about those energy guys with the weird O?”
“Ørsted?”
“Yeah, those guys!”
“You’re right. Let’s put that in there. Okay cool, thanks.” Communications Team Guy #1 turns back to his screen but then remembers something. “Hey, wait a sec. We already have that in the Global Sustainable Balanced Fund. I’m talking about the Environmental Leaders Fund’s ‘ESG Activities’ section.”
“I know, man. You can just cut and paste it. They’re, like, all working with those wind guys. They all took the hit.”
Communications Team Guy #1 ponders for a moment. “Okay. Thanks, bud.”
“I’m so bummed that the Canucks traded Spencer Martin. I had him in my hockey pool team this year.”
“Sucks, man.”
Pure speculation on my part of course. I cannot possibly know what went on there, other than some editorial oversight of questionable competence.
I found out that NEI “exited their position in Ørsted” (translation: took their money out of the company) with a whole other fund, the NEI Clean Investment Fund in September 2023, but I couldn’t find mention of Ørsted in the funds I’m reading about and Ørsted is not listed in the online version of the fund info. Maybe these other two funds were invested in Clean Investment Fund? (I can’t go down that rabbit hole—I’m getting that neck pain I got when I followed the mining companies’ lobbying dollars.)
Anyway the “ESG Activities” do all of nothing to help me see why this fund is an environmental leader, while my own research tells me it’s full of environmentally crushing businesses. It’s smelling kind of poopy.
Meanwhile in rabbit hole #2, things were even stinkier. In the smaller $261 million NEI Global Sustainable Balanced Fund, along with over 58% being invested in the other fund that is spread across dozens of companies that we just saw are not remotely sustainable, another approximately 10% is with other financial institutions. Rabbit hole central.
Some of these institutions facilitate mortgages (e.g. Federal National Mortgage Association, which most people know as Fannie May), others are involved in lending to so-called developing nations, such as the International Bank for Reconstruction & Development, and the International Finance Corporation (IFC), both of which are part of the World Bank.
Trying to grasp how investing in the World Bank is sustainable, I came upon this snippet from the IFC’s Impact Measuring and Monitoring report, “Measuring Up”.
With the AIMM [Anticipated Impact Measuring and Monitoring] system, IFC can examine how a project promotes objectives that contribute to the creation of markets—by enhancing competitiveness, resilience, integration, inclusiveness, and sustainability. Ultimately, the system helps IFC maintain a line of sight from our intermediate objectives to the World Bank Group’s twin goals and the United Nations Sustainable Development Goals. (Bolding my own).
I reminded myself what the World Bank’s “twin goals” are: ending extreme poverty by 2030 and boosting shared prosperity, in alignment with the Sustainable Development Goals (the SDGs). Anyone who still believes the SDGs are a good thing, please stop. It’s a bit like saying heroin makes you feel better. If you need help understanding how the SDGs are part of the shell game we see with sustainable finance, I offer more here.
For now here’s a quick sum on the SDGs: hegemonically imposed, growth-obsessed “solutions” do not equal life-affirming changes. They equal business as usual with colourful boxes.
Seeing that NEI’s Global Sustainable Balanced Fund is invested in various arms of the World Bank was far from reassuring, even if I could get past the convoluted nature of where the money was actually flowing (which I couldn’t, and let’s be honest, no one can).
In total, out of Global Sustainable Balanced Fund’s 245 holdings, dozens of them are with financial institutions, presumably a range of equity and fixed income products. (I put the names of all 245 in a spreadsheet (here) so you can scan them too, if you like, along with NEI Global Sustainable Balanced Fund’s 48.) This investing in investors makes it impossible to follow the money, much less determine in what way it is sustainable.
But from everything I can see with some texture, none of it is sustainable. It’s the opposite. Among the 245 holdings of the Global Sustainable Balanced Fund—
(I’m sorry this is so rabbit holy, believe me I am. Bear with me. We’re getting to the slaughterhouse flotation sludge… )
—along with all those financial institutions, there are more straight-up companies, too. One that caught my eye was Darling Ingredients.
“They sound nice,” I thought to myself. “I wonder what they do?”
It turns out they process slaughterhouse flotation sludge (translation: water polluted with protein and fat from animal slaughter and meat processing, used in animal feed and biofuels). They also convert “fallen stock” (translation: animals that died before slaughter from one thing or another) and other animal waste, into low-grade energy. You can read all about their sustainable hogwash here. (Brace your neck. And stomach.)
They couldn’t have grown to this scale of production (and profit) without the factory farming industry growing alongside. I’m not going to tell anyone what to eat—I have the same amount of time for monoculture chickpeas as factory-farmed animals (i.e. zero). But let’s not pretend factory farming is anything other than mechanized cruelty at scale for profit, with a toxic waste management challenge as a byproduct. It is decidedly not sustainable. (Sustainable things don’t need to kill diversity and constantly grow to survive.)
As Darling’s CEO, Randall Stuewe noted at their most recent annual earnings call, 20 years ago they were 600 people with 20 facilities in the U.S. Now they are 15,000 people strong, with 260 global locations, more than USD 5 billion in annual turnover, and their ingredients serve a growing demand for food and energy. Their core business is rendering (translation: processing animal fat), and collagen (translation: processing animal protein). They sell combustible fuel of various grades made from this slaughterhouse flotation sludge, fallen stock, etc. (Calling it “biofuels” sounds nicer.) They are also anticipating an aviation fuel business. Or, as they call it, “sustainable” aviation fuel.
Did I mention I own this shit?
As far as I could find, there is nothing life-affirming about these funds that I’m invested in. They are sliced and diced and redistributed in profitable and growing wealth aggregators, much like the mortgage-backed securities that we all threw our hands up in disgust about back in 2008.
The difference is, instead of the risks being triggered by the socially reprehensible horror of ensnaring poor people in loan agreements they had no hope of paying back, all for the egregious error of wanting to own a home—these “sustainable”, “environmentally leading” funds are built on the far more mundane, widespread yet completely insane belief in endless growth, compounded by a complex series of gates that pretend the social, environmental, and governance boxes have been more than checked, across all industry sectors, regions, governments, and financial institutions.
The financial hiccough of 2008 looks like a little side project at DisneyLand by comparison. (Incidentally NEI Global Sustainable Balanced Fund does not hold a position in Disney, however they—I!—do own some of WarnerMedia.)
The other big difference between what went down in 2008 and what’s going on here is that instead of amplifying the risk of bad loans, it’s amplifying the risk of causing the non-viability of all living systems.
So what do we do about it?
I have a three-tiered recommendation this time around, with something for everyone:
For decision-makers within the asset owning institutions: Get real about the positive change you stand for. Call bullshit on the wealth-aggregating destroyer you have profited from so far, one that works in service of hoarding for the few at the expense of all life on earth (including yours and everyone you know, even those amazing birds in the forest at that eco-village in Costa Rica you took the family to during lockdown).
Stop pretending you are good for society and get help, for yourself and your organization.
For ESG professionals and anyone producing disclosures: Make it reasonably easy for anyone with curiosity—me, my mother, your communications team—to follow the money, right to the ground (or the “sustainably fuelled” airplanes up in the sky, or wherever the impact is) to understand what—if anything—is changing. Stop using obfuscating language that suggests that non-finance folks don’t need to worry our pretty little heads about it (since clearly we do). Hire the people who make IKEA furniture assembly instructions if you need to. Just make it clear (and honest).
Provide plain English communications about where the money is and what it’s doing.
For anyone saving for retirement: Realize that no financial planning professional can realign your portfolio to address these systemic issues. The market is doing what it is designed to do: generate and aggregate wealth. There is no investing app or risk calculator that can fix this. Take a look in the mirror and ask yourself: is this how you want to make your money, enslaving biological systems and most humans within them, so you can one day spend more time at the cottage? If the answer is no, stop financing the problem, ASAP. Stop accepting the crumbs you’re given while being strung along in work you don’t love, for decades. Stop trusting the people who are systematically poisoning places and oppressing people, even if they call it sustainable and environmental leadership.
Stop paying for this shit.
I can hear the beseeching cries in response to #3: Well what else can I do then?
That’s a good question. But not having an easy answer is not a good reason to keep doing the wrong thing. I have some ideas but I don’t need someone suing me for all the sock yarn in my stash for doling out financial guidance that I’m not legally qualified to give.
Each of us will have to figure this out beyond the pixels on this screen. The bonus recommendations below might help.
This is just me owning my shit and letting you know what I found out. I’m going to go get cleaned up now.
Bonus Recommendation
A lot of “sustainable” investments are connected to food and farming. For insights about what truly sustainable, actually environmentally leading food and farming looks like, I offer the following:
This is a conversation I had with journalist and regenerative agriculture expert, Judith Schwartz as we analyzed global processed food company, Danone.
Here I speak with farmer Nic Harfrield as we explored the business model and impacts of global meat giant JBS.
And if you’re ready for even deeper stuff, meet Adan and Toninho of Brazil, part of a series looking at decolonial agriculture.
I have done my best to include accurate, insightful information. If you see any errors, please tell me so I can make the corrections as soon as possible. And feel free to leave any other response—I’d love to hear from you.
Epilogue
We can see all 245 of the holdings of the NEI Global Sustainable Balanced Fund here. But I wanted to understand what the percentage beside each holding’s name means. Not the % Portfolio Weight (that’s labeled clearly enough)—the other percentage. For instance, “European Investment Bank 3.875%”—what is that percentage about?
I couldn’t figure it out so I called 1-888-809-3333 Client Care at NEI, on Tuesday, January 16. Hanan at x 1013 spoke with me (case # SR00009569). She was very helpful and polite. She didn’t know the answer, so she put me on hold and messaged her team with my question. I waited for a few minutes and when she came back on the line, she read the ideas her teammates had put forward.
Perhaps, she said, it was the percentage of the company that NEI owns? But I told Hanan that I thought it would be strange that NEI owns, say, 6% of Darling Ingredients, those nice slaughterhouse flotation sludge processing folks in Texas. I had thought that’s what it was, but when I looked into Darling’s disclosures (at first simply trying to understand if NEI owned 6%, then becoming increasingly intrigued by the environmental leadership of factory farming and slaughterhouse flotation sludge…) I couldn’t find anything that suggested NEI owns 6% of them. I did see that there were 599 institutional holders of Darling so it seemed even less likely that NEI would own an entire 6% (although BlackRock owns almost 14%, so… maybe?) But if we used this assumption, it would mean NEI owns 3.5% of the Inter-American Development Bank (those folks from the IFC promoting endless economic growth to poor “undeveloped” nations) which also seems out of whack that a little ethical fund from Western Canada could be so prominent in the IFC. But… maybe?
The other suggestion someone on Hanan’s team put forward—she was reading to me in real time as the answers were coming in—was that perhaps it was the rate of return on that particular holding. Maybe? It seems strange to list it like this though, as that number would float up and down, and not always be positive (surely?). All the percentages I could see are positive (here again if you want to scan the list I pulled from the site).
Anyway I told her I really appreciated the quick brainstorm but I think it would be good to know the answer. She agreed.
She said someone is going to call me back. I’ll keep you posted.
I'd love to see this study / piece taken up by the financial sector's 'pink paper' - The Financial Times! Just putting it out there. Unsurprised by your findings and, as always, respect to your constant reminders that this is 'our shit'.
Amazing piece! Wish we could replicate this investigation across the countless ESG offerings out there.