Why it's crucial to consider long-term perspective inherent in ESG investing

economictimes.indiatimes.com:

ESG is a failure and should be retired. His argument was based on the distinct metrics for environment, social and governance, claiming that they serve different needs. He's right, they do.

But therein lies the intent of ESG, acknowledging the multifaceted nature of businesses and the complex web of ESG factors that impact their operations.

Damodaran blamed the inclusion of 'S' in ESG, citing the impossibility of achieving consensus on social issues. While consensus may be elusive, ESG doesn't aim for a one-size-fits-all definition of 'good' or 'bad' companies.

His concern that companies will manipulate ESG scoring systems to their advantage is valid. But then, it should not deter us from placing faith in ESG principles or continuously enhancing the ESG framework.

In the financial world, when we encounter problems or crises, we don't discard our regulations. Instead, we focus on refining and strengthening those, bolstering supervision and adapting to the changing landscape. The key lies in what is measured and how it is measured — constantly evolving and improving ESG assessment methodologies is essential to ensure they are reliable, robust and resistant to manipulation.

While Damodaran expressed deep distrust in CEOs, it's essential to recognise that the corporate sector plays a pivotal role.

Trust issues about CEOs need to be addressed through regulatory measures like granular disclosures and enhanced transparency within corporate frameworks. This is precisely where ESG has a role to play. The choice to advocate for trusting governments over corporate leaders is personal, but addressing the world's most pressing challenges demands a collaborative approach.