A Progressive’s Case for Getting Rid of ‘ESG’
climate change, are even more important than non-ESG ones. But then these effects should be dealt with by regulation, such as a carbon tax, just like any other externality. Any substantial externality, ESG or not, should be dealt with primarily by the government.
Just because one falls within the ESG bucket and attracts the attention of ESG investors doesn’t give policy makers an excuse for inaction. And there’s another reason to scrap the “ESG" term entirely. That’s that the term has become heavily politicized, leading to ideological reactions rather than logical evaluations.
Consider the following statements: “More ESG investment is always better" and “Considering ESG risks violates fiduciary duty." An ESG advocate will latch on to the former, and an ESG opponent the latter. But if we remove the word “ESG," we can assess the claims with a clear head. More investment isn’t always better, due to diminishing returns, and taking risks into account is consistent with fiduciary duty—in fact, an essential part of fiduciary duty.
Instead of debating ESG, we should discuss “intangible assets" and “long-term value." Neither term is political, neither term excludes certain elements and puts a halo on others, and neither term leads to a cottage industry of consultants trying to ensure that something ticks a box. What matters is whether something improves long-term value, rather than whether it’s called ESG. The ESG movement had its time and place.
It usefully drew companies’ and investors’ attention to the fact that nonfinancial factors can be financially material. But we’ve now known this for decades and its time is past. Just as painting by numbers is useful for a child learning to paint but limiting thereafter, the current
. Read more on livemint.com
