How To Make ESG Investing Real and Meaningful.
By Michael Posner
Attendees at the World Economic Forum in Davos last week made frequent references to ESG. An acronym for environment, social, and governance issues, ESG has become shorthand for what had been known as “corporate social responsibility” or “sustainability.” Judging from programs and conversations in Davos, there is a growing sentiment, at least in some quarters, that global companies need to pay greater attention to goals beyond maximizing short-term financial returns to investors.
Discussions of ESG sometimes seem confused because the concept actually has two distinct meanings. Many companies refer to ESG as a catch-all for their good works, ranging from supporting charities to reducing their carbon emissions. In the investment world, ESG is now commonly used to describe mutual funds and exchange traded funds (ETFs) designed to channel capital toward companies that meet certain positive criteria. In both contexts, ESG proponents tend to focus primarily on the environment, and specifically on what companies can do to slow global warming. Much less attention is paid to social concerns like the well-being of workers in global supply chains.
The largest institutional investors, firms like BlackRock, State Street, and Vanguard, now aggressively promote their ESG funds as vehicles for their clients to invest in companies that are protecting people and the planet. The giant financial firms typically also promise that ESG investments provide returns comparable to those of conventional funds. Based on this marketing, ESG funds have grown dramatically since the term was coined in 2004 and by one count now hold close to $35 trillion globally, or roughly a third of the total assets under management in the US and Western Europe.
Read the full Forbes article.
Michael Posner is the Jerome Kohlberg Professor of Ethics and Finance, Professor of Business and Society and Director of the NYU Stern Center for Business and Human Rights.