Our findings show a relatively high exposure to deforestation across a suite of ETFs run by State Street, Invesco, and iShares. Across the ESG-labelled funds analysed, exposures average 5.8%. Perhaps surprisingly, most ESG-labelled funds actually exhibited higher exposure to deforestation-risk issuers than non-ESG benchmarks. This may in part be because the underlying ESG indices used to inform allocations rely on broad-based ESG ratings that gloss over deforestation risks.
The findings raise questions about the appropriateness of current ESG bond ETFs to investors focused on deforestation exposure, and shed light on the potential shortcomings of sustainability-tilted indices.
