The environmental, social and governance bandwagon is rolling. Companies are becoming ESG advocates, tempted by promises that they will become more profitable and valuable if they follow the ESG script, say the right things and spend money improving their ESG ratings. Meantime, institutional investors, drawn by the allure of earning higher returns while keeping their consciences clean, are directing tens of billions of dollars to “good” companies with high ESG ratings.
Much as we would like to accept this virtuous story, we believe that the whole concept has been overhyped and oversold. Furthermore, it is backed by weak to non-existent evidence of promised pay-offs for either companies or investors, and fraught with internal inconsistencies that undercut its credibility.
Related to ESG is the view that the historical corporate focus on shareholder wealth leads companies to adopt policies that are bad for society and should be replaced by a broader stakeholder perspective.