Lately, there has been a growing interest in people investing in various Environmental, Social, and corporate Governance (ESG) funds. They are usually sector funds, that only invest in businesses that have been selected based on their environmental, social, and corporate governance performance or actions. The idea is you invest in things that make the world a better place, rather then a worse place.

ESG funds are heavily marketed. It’s hard to open Facebook without a targeted ad, trying to play on your emotions and feel good about investing in these kind of businesses. But often if you look more then skin deep, they are highly scammy with few environmental and social benefits, despite the marketing hype. Often the products sold by ESG companies are hardly better then sold by those businesses not chosen by the ESG fund marketers.

But a bigger problem is that ESG companies aren’t well diversified compared to most market indexes, and that investing doesn’t actually decide which businesses have good business models and make money. Ultimately, it consumers, not investors that decide if a business is profitable and make sense. By buying an index fund, you end up with both ESG and non-ESG, and will profit when either one makes money. Risk is lower, because you have a wider range of stocks then only the ESG funds.