ESG Investing Is Interesting
ESG Investing aligns your money and how you spend it with your environmental, social, and ethical values. My first reaction is to look down on anyone who goes into the stock market with emotions in their head, and the intention to cause change. I think that can be counterproductive and can lead to buying into companies that construct hollow promises. However, I decided to research and boil down my thoughts, because ESG investing is becoming rapidly larger.
First of all, I found that ESG investing is less dumb than I thought. Rather than buying a company based on how kind it is to the environment, ESG investing screens the leadership of a company and the decisions they make. I have long said that leadership is what makes a company, so I believe any tool that more effectively captures good leadership is a worthwhile one. Also, the financials play out in favor of higher-rated ESG companies. On average, companies with higher ESG scores had better, and more profitable financial results.
However, this is where I start to run into problems. Many companies that have ESG scores baked into their investing or companies that try and raise their ESG scores are doing so to cater to a younger audience. It feels like pandering it is pandering. Companies are trying to make themselves look better than they are, and I don’t like that. I’m still unsure what the tradeoff between financial returns and ESG scores is, and I think companies greenwash. On top of that, calculating ESG scores is pretty difficult. To do so requires complete disclosure from companies, this is nearly impossible to attain, and I believe leaves this metric open to bias.
Here’s what ChatGPT had to say about ESG investing. “ESG investing represents a paradigm shift in the world of finance, elevating sustainability and corporate responsibility to the forefront of investment decisions. As the world embraces the importance of ethical, social, and environmental considerations, ESG investing continues to evolve, influencing corporate behavior, regulatory environments, and investor strategies. By actively aligning financial goals with positive societal and environmental outcomes, investors can play a crucial role in fostering a sustainable and responsible global economy. As ESG investing continues to grow, its impact on the stock market and beyond will undoubtedly shape a more prosperous and equitable future.”
To me, still, ESG investing represents a nice coat of paint slapped onto an industry that prioritizes money above all else. I promise you no institutional investor cares about ESG outside of making money. If they tell you they do, they’re lying. I still haven’t seen too much evidence that ESG investing will have a positive or negative effect on your portfolio and I haven’t seen too much evidence that an ESG score is even that accurate. In the coming years, as firms get better and more effective at calculating ESG, and more studies are done, maybe it will become more than it is right now. Unfortunately, I don’t think it is something you should be using to decide with your money.
