The backlash against ESG investing in the U.S.
In the U.S. a counter-movement would prohibit some financial institutions from investing in firms that follow ESG practices, is gathering steam. What does recent evidence show about the merits of ESG investing?
- On corporate governance i.e. the “G” in the acronym: reforms in this area can be financially rewarding. as studies in a variety of countries have shown that corporations have higher returns and higher share prices if they constrain executive compensation by such good governance practices.
- On sustainability i.e. the “E” in the acronym: findings are not favorable for sustainable investing as it is not clear that acting to protect the environment above and beyond what is required or incentivized by the government, however praiseworthy, will necessarily help a company’s long run profits. In addition, green pledges turn out to be insincere greenwashing.
Since the beginning of the year, Republican state lawmakers proposed up to 49 laws to prevent banks and other institutions from paying attention to ESG criteria in their decisions over which corporations to invest in. At the federal level as well, conservatives in the Senate and House are considering anti-ESG legislation.
ESG investing, versus those who would ban it
By: Jeffrey Frankel – Harvard University
The disconnect between firms and financial markets
For portfolio managers ESG has become a marketing tool but business executives might think otherwise:
In a 2022 survey with business executives by Global Data, highlighted in a report from the Project Management Institute, two-thirds of respondents indicated that COVID-19 had heightened their awareness of, and attention to, ESG, and 69 per cent plan to change policies or practices in the next five years to achieve ESG objectives. However, there is an imbalance in the approaches being taken by the respondents. The same survey found that most respondent organisations (69%) had ranked environmental goals (battling climate change and pollution) as their top priority; only 16 per cent identified social impacts and 15 per cent identified governance.
In this commentary, Ricardo Vargas uses the example of a project to rebuild homes in Haiti after the 2010 earthquake to show how all three ESG components can work together.
Marketing is killing ESG. Here’s how we can save it
By: Ricardo Viana Vargas – LSE
