I have been practicing ESG investing for years before the environmental, social responsibility and governance labels became fashionable.
Formerly called Socially Responsible Investing (SRI), ESG made sense to me from two perspectives.
I wanted to put my money where it was in my heart, so I figured that companies that committed to behaving ethically were less likely to engage in activities that would ultimately destroy their value.
Can the “ethical behavior” hypothesis invalidate the theoretical argument that maximizing something other than profit cannot logically lead to higher profit? Maybe.
Decades into the debate about SRI/ESG investing, research shows that the strategy as a whole performs comparable to general market investments.
For example, the Kenan Institute for Private Enterprise at the University of North Carolina reports:
“The impact on performance is consistently (albeit unevenly) positive, suggesting that companies with higher ESG scores do better in many ways.
“The evidence for return on investment is more murky, with some studies showing higher share prices for companies with higher ESG ratings, while others show no measurable effect, suggesting lower financial returns. We even have research to prove it.”
Advice from Schwab’s website:
“Our research shows that if the concept of socially responsible investing appeals to you, you do not need to lower your expectations when it comes to risk and return. However, there are many ESG options available and multiple ways to construct an ESG portfolio.Before embarking on an ESG investment, you should take your investment goals and risk tolerance into consideration.”
So you can do well and do good — it’s a win-win, right?
Florida Gov. Ron DeSantis has criticized climate-responsible investments as rising floods, subsidence, extreme heat, wildfires and drought ravage the state.
He believes that “businesses across America continue to inject ideological agendas through the economy, not the ballot box.”
By his order, state funds should not be invested in ESG-focused funds.
Florida, along with Texas, West Virginia, Tennessee and others, have recovered public funds from BlackRock and other asset managers. Because they “pursue his ESG goals at the expense of pure financial gain.”
BlackRock notes that investors are interested in climate change as a long-term investment agenda and is acting accordingly.
Similarly, in November, 12 states requested a delay in the normal extension of Vanguard’s authority to own energy utility shares. They argued that
“The state accused Vanguard of violating its promise to avoid exercising ‘no control over the day-to-day management’ of utilities,” it said in a shareholder resolution to more thoroughly disclose climate change impacts. To Michael Hirczyk of the LA Times when he voted for it.
These political actions go against the reality of climate change. In addition, they challenge his 30-plus years of expert climate science that oil giant Exxon did from his 1970s to his 2000s.
A recent Harvard study builds on previous research on “who knew what when”, noting that Exxon’s predictive model is even more accurate than NASA’s predictive model for the climate impacts of burning fossil fuels. confirms the research of
Sadly, Exxon’s official statement directly contradicted its internal scientific data.
The International Energy Agency predicted last month that solar and wind power will become the world’s largest source of power generation by 2025. Public and private markets are betting on renewable energy today, not just in the abstract future. ESG investing reflects this perception.
As Kermit the Frog put it in his lament in the 1970s, “Going green is no easy task.” Still, investing green now can improve the present and future health of the planet and our wallets.
