- The ESG movement calls for public companies and investors in public companies to identify and voluntarily implement environmental, social, and governance initiativesâostensibly in the public interest.
- One school of thought supporting ESG is that doing so will make companies more profitable and thereby increase the wealth of their shareholders.
- However, academic research to date has failed to identify a consistent and statistically significant positive relationship between corporate ESG ratings and the stock market performance of companies.
- In fact, research instead suggests that adopting an ESG-intensive model might compromise the efficient production and distribution of goods and services and thereby slow the overall rate of real economic growth. Slower real economic growth means societies will be less able to afford investments to address environmental and other ESG-related priorities.
- The second school of thought is that companies, their senior managers, and their boards have an ethical obligation to implement ESG initiatives that go beyond simply complying with existing laws and regulations, even if it means reduced profitability. However, corporate managers and board members cannot and should not be expected to determine public policy priorities. The latter should be identified by democratic means and not by unelected private sector managers or investors.
- Given that there are indications that investor support for ESG is waning, it is apparent that the time has come for corporate leaders and politicians to acknowledge that itâs time to move on from ESG.
Authors
- Pages
- 13
- Published in
- Canada
Files
Table of Contents
- About this Publication 2
- Putting Economics Back into ESG 3
- An Interminable Debate without Economics 4
- Why Care about ESG? 5
- What Can Be Done? 6
- 1. Expand what counts as ESG 6
- 2. Stop regulating in the name of ESG 7
- 3. Prosecute ESG-related fraud 8
- 4. Impose liability for the use of ESG ratings 8
- 5. Regulate proxy advisors 9
- Conclusion 9
- Endnotes 10
- References 10
- About the Authors 13
