A growing fad among institutional investors is something called ESG – a strategy where customers’ money is put to work only in companies exhibiting a firm commitment to proper environmental, social, and governance causes.

Fair enough. But it turns out, a lot of those firms which said they were following this enlightened, responsible, sustainable, and other buzzwords were also putting a fair amount of their customers’ money in Russian companies.

And that’s turned out to be a massive problem:

Most funds — including those screening for environmental, social and governance factors — failed to see the risks that a Russian invasion of Ukraine could pose to their portfolios. As the losses and economic fallout mount, asset managers are increasingly calling the war a clarifying moment for ESG in the industry.

Too many investors have been blind to the idea that ethical investing ultimately has the potential to protect wealth, said Adam Matthews, chief responsible investment officer for the Church of England Pensions Board. The perceived division between “hard-nosed finance” and “morality” is false, he said. “It’s possible — and important — to think about both aspects.”

When a country violates “international norms and invades another sovereign country, then it is clearly an ethical and moral issue that has financial impact,” Matthews said.

Well yeah, Of course this should be a big consideration for investing. But some ESG practitioners didn’t do it:

About 14% of sustainable investment funds are directly exposed to Russia, according to industry research firm Morningstar Inc. At the end of last year, ESG funds were invested in [Russian oil companies] Gazprom PJSC, Lukoil PJSC and Rosneft, among others.

So much for the “environmental” leg of the ESG investment thesis.

The bottom line: even those who say they invest ethically can be in bed with the devil. And as always for investors, it’s buyer beware.