ESG Investing & the Movement Against It
ESG Investing: The Future of Investing or Financial ‘Woke-ism’?
Are ESG considerations merely investing for “woke” millenials? Or do they have the power to create meaningful social and environmental change?
ESG is an acronym that stands for environmental, social and governance and represents these considerations within the business and investing world. For example, investors may look for companies that claim to use sustainable practices in one or more of these areas.
ESG investing aims to integrate green and socially responsible factors into a portfolio to generate long-term and holistic positive impact. By considering a company’s environmental, social, and governance practices, investors who care about sustainability can make more informed decisions about where to invest their money. In recent years, it has become popular with around 85% of investors interested in products or companies with ESG standards.
In theory, if more companies promote sustainability by implementing holistic environmental, social and governance practices, and more investors embrace these companies, the earth and life upon it will reap the benefits. Naturally, it has become more complex than that. It gets sticky because these considerations are harder to measure than the more quantifiable financial outcomes.
Many economists claim that investing in companies that publicly embrace ESG sacrifices financial returns without gaining much, if anything, when it comes to actually furthering ESG interests.
Is this claim part of an anti-ESG backlash? Is ESG just greenwashing for investing?
The S&P 500 ESG Index
Last year in 2022, Tesla got kicked out of the S&P 500 ESG index. This index tries to hold companies with the higher ESG scores within each industry. That means Exxon Mobil could stay in the S&P 500 ESG index, even as it continues to extract and burn fossil fuels and be a huge contributor to climate change. The company remains because it rates better than its peer energy companies.
Shortly after Tesla was kicked out of the index, Tesla CEO Elon Musk criticized ESG, calling it a scam that “has been weaponized by phony social justice warriors.”
This act may not drastically impact the financial situation of Tesla, but will continued ESG metrics support overall sustainability efforts?
As with almost any movement, the conversation around ESG has become politicized. Recently ESG seems to have become part of a bigger culture war, where ESG investing now falls into the category of ‘woke-ism’ and is even being banned in certain legislations in states around the U.S.
Does ESG Investing Threaten Free Markets?
Another interesting argument against ESG is that it goes against free markets and capitalism. While there are many nuances and conversations around ESG indicators and measurements, at the core, it seems that investing in companies that align with one’s values is exactly what the free market set out to do.
As climate-related disasters intensify and climate activism ramps up, resistance from fossil fuel reliant industries grows. And often, it is easy to toss things under one label or another, push them to one side or another, without having a deep understanding of what the thing even is. Is the anti-ESG backlash another desperate attempt to cling to coal dependency by those that profit from it even as we feel the literal heat from these decisions around the world?
If you wish to invest money, whether you have a lot or a little to invest, and you want to support companies that value the environment, social fairness, and govern themselves well, you can. ESG investing is not just for big deal players. The most important thing is to do your homework and research the companies you will support with your hard-earned money.
Look for transparency and traceability everywhere.
And keep up with us at Producers Trust, because transparency and traceability is what we value most. We have been working tirelessly to build them into our tools, platforms, and business models and to foster connections and partnerships around the world with like-minded partners so that together we can imagine a world with a healthy environment, economy and production system.