ESG funds, which are investment funds that include companies with the highest scores in environmental, governance and social factors, are becoming more popular as people seek to invest where their environmental concerns are. BlackRock launched an ESG-aligned new fund in April. Investors couldn’t stop raving about it. They invested $1.25 billion in the U.S. The Carbon Transition Readiness ETF (stock symbol LCTU), was launched on the first day. received more investment than any other ESG fund or ETF.

But this wasn’t entirely a feel good story about investors betting on a more environmentally-sound future. BlackRock’s ETF also included Kinder Morgan, a pipeline company, and oil and gas companies such as ExxonMobil or Chevron.

This was not unusual for an ESG. It is a great example of the confusion and controversy surrounding ESG funds. According to the Forum for Sustainable and Responsible Investment , the amount managed by money managers in these funds rose from $569 billion to $16.5 trillion in 2010. ESG funds have risen in prominence without any regulation or requirements from SEC. The SEC has just begun to create a framework to handle ESG funds. ESG funds are not guaranteed to be top-stewards of the environment. The same goes for ESG funds that are marketed as ESG funds.

Andrew Behar, CEO, As You Sow, a non-profit shareholder advocacy group, stated that “there’s a fundamental issue, which is that the SEC allows people to name funds without necessarily reflecting what’s in the fund.”

How can you know if you are making a sustainable and green investment? TIME interviewed a range of investment fund presidents and managers to gain a better understanding of their operations. This guide will help you understand the various ways ESG is defined by different funds, how companies are vetted and which companies meet the highest standards.

Limits of ESG funds

According to Leslie Samuelrich (president of Green Century Funds), ESG is generally defined as “investing in all the best,” Asset managers try to package companies that have trustworthy corporate governance and who score better than their peers in a variety of characteristics. Many funds use ESG ratings of MSCI for their decisions.

ESG does NOT automatically exclude certain types of companies, even if they are, Samuelrich says, “oh those are dangerous businesses.” BlackRock does not have specific funds that exclude fossil fuel companies. However, its general ESG-aligned fund contains fossil fuel companies it believes will benefit the most from a transition towards a low carbon economy. ESG, or sustainability, is also a part of funds named State Street Fidelity Vanguard and other asset managers.

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Asset managers can decide whether to screen companies that are involved in tobacco, fossil fuels, guns, and other areas of investment generally considered to be harmful to people or the planet. Green Century Funds does not permit fossil fuel companies to be in its funds. Trillium Asset Management, Parnassus Investments and Trillium Asset Management also have this prohibition.

ESG funds are based upon relativity. Matthew Patsky, Trillium’s CEO and portfolio manager, does not believe that companies like ExxonMobil or Occidental Petroleum should be included in funds billed for being good for the environment.

Matt stated that “the small independent is most likely the dirtiest.” “ExxonMobil will be cleaner than that.”

He said, however, that they had funded more of the misinformation campaigns to declare that climate change is a hoax than any other corporate entity worldwide. That’s not a good idea. It’s not something I want to see in a portfolio.”

How ESG fund managers screen companies

While standards for environmental care vary across industries, there is a set of benchmarks that ESG fund managers consider when screening companies for their environment. They look for companies with science-based targets that have been vetted outside experts. Because relative goals, such as reducing carbon emissions per customer, don’t provide a complete picture, they look for absolute goals.

Julie Gorte, Impax Asset Management’s senior vice president for sustainable investment, claims that there is “a lot of fairy dust” when it comes to promises of net zero emissions. This refers to companies that claim that they can eliminate carbon using technologies that aren’t yet available. Gorte states that companies who are serious about reducing carbon emissions have specific plans to reduce not only their direct and indirect emissions, but also emissions from other companies in its value chain. These are called Scope 3 emissions.

Gorte stated, “And if the target doesn’t tell that then they’re likely just blowing smoke and hoping nobody will notice.”

Gorte stated that emission reductions are the most important aspect of a company’s quest to achieve net zero. This is before carbon offsets, which can sometimes be used as a covering for harmful environmental practices .

Fund managers often dig deeper than the numbers in public reports.

Lori Keith, the director of research at Digital Realty Trust was present when Parnassus invested. She visited several of their data centers along with some of her colleagues. The company has approximately 300 data centers around the world and has set a goal to reduce its indirect and direct emissions by 68% by 2030. They also increased their use of renewable energy. Keith visited the data centers and observed the operations of Digital Realty Trust. She also interviewed frontline employees and executives to verify that the company was making real progress.

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Keith, also portfolio manager for Parnassus’s $8 billion Mid Cap Fund, said that interviews and visits are crucial to ensure that the information they put out is serious and that they are moving towards their targets.

Yolanda Courtines is the portfolio manager for the Vanguard Global ESG Select Stock Fund. She says that she meets with every company on her funds at least once a calendar year, sometimes five to six times.

“It’s asking simple questions. “Are you working with the supply chain? What are you doing to help them reduce their carbon footprint? She asked if you are putting solar panels onto the roofs of suppliers ?,'”. “That’s the level of questioning you really want to go to to understand what’s going on.”

Patsky says that relying on data alone does not always give a complete picture of a company. He also admits that Trillium’s vetting process which includes everything from talking with current and former employees to checking out NGOs who are familiar with China’s labor conditions, can still not uncover all the details.

Patsky stated, “I don’t want to make you believe we have perfect insight. Because if we had the equivalent of inside knowledge that we don’t have, we would have it.”

These are the companies that stand out for fund managers

ESG funds are not made up of perfect companies. They are seen by fund managers as both leaders and laggards with lots of room in the middle. Investors who care about the environment and are open to making positive changes will be able to choose leaders who make environmental improvements beyond their peers, but still have their flaws.

As You Sow’s CEO, Behar, cited Kellogg’s as an example for a leader in the food supply chain. It used wheat and oat plants that had been sprayed with glyphosate herbicide, which is a well-known carcinogen. Kellogg’s was forced to make a 2020 plan to eliminate glyphosate, after being pressured by activists including As You Sow. PepsiCo and General Mills have recently developed regenerative agriculture plans.

“A company such as Kellogg’s can be called a leader. Behar stated that General Mills is also a leader. Because of the competitive pressure, the entire industry must follow their lead.”

Courtines mentions Michelin, the tire manufacturer. She said that it was a difficult industry, but they are responsible for managing the rubber supply chain, and helping to build the tires that will be the best for electric cars, which will reduce the carbon footprint.

Microsoft and Google were two companies that were mentioned in discussions with fund managers. Both companies are already carbon neutral. Google has already eliminated legacy carbon and Microsoft plans to do so by 2050. “Their initiative was to eliminate everything they’ve emitted from the beginning, and hopefully that leads other companies to take a similar approach,” stated Iyassu essayas, director ESG at Parnassus.

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Patsky points out that Google is under investigation for anti-competitive practices. He believes that Google’s environmental record is sufficient to be included in Trillium funds. This includes Google’s 100% use of renewable energy, and its purchase of Nest, the smart thermostat company.

He said, “That’s only one of their many products. But it’s one where I’m like ‘Allright, that’s just amazing.'” It’s a self-learning device that helps people to recognize that it’s possible to be comfortable with temperatures being slightly warmer in summer than in winter.

How do you examine companies and ESG funding yourself

Retail investors can read the prospectuses of specific funds to learn more. This can be complicated and there are many fine print. As You Sow offers an interactive tool which provides more information about the positions of dozens ESG funds on fossil fuels and guns as well as other issues.

Fund managers suggest average investors study annual sustainability reports to help them evaluate individual companies. You can search the internet by entering the company name and “sustainability reports” to find a list of related keywords. Companies that have made significant environmental progress will have reports that include statistics and goals, and not just anecdotes. You should look for specific numbers and deadlines. Investors could also examine whether corporate governance structures have enough people who are concerned about the environment. This could be done by looking for evidence that board members and executives have discussed the importance of the environment in the past or if they are from companies and jobs that were concerned with it.

It’s not easy. Samuelrich from Green Century recommends that investors consider the core business of a company before making any major decisions.

What is the purpose of the company and what is its impact on the environment? Are they doing anything neutral? Samuelrich asked, “Is it doing something that is neutral?”

She advised investors to focus on the most important issues and search for information on news articles, company websites and sustainability reports.

“What are you looking for? Are they trying to reduce carbon emissions?” Is that something they have on their website? Do they want to reduce plastics? Do they try to reduce their water consumption? Are they implementing a policy regarding supply chain labor standards, such as ?…? Do they have women and people from different backgrounds on their board?”