Why ESG Investing May Be Doing More Harm Than Good

ESG investing - that is investing that puts an emphasis on the environmental, social, and governance characteristics of companies - continues to be popular. Investors may want to avoid ESG-related risks, or to feel good about their portfolio, which are legitimate motivations. But how much good is ESG investing actually doing?
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[dalegreer]

That's putting the cart before the horse. Investing in a brown company isn't going to make it more green unless they previously promised to do more green things with more money. Raising the cost of capital for brown companies is likely to shrink them, so that even if they become proportionally more brown, they're less brown in an absolute sense.

[gidifihrer]

The ESG thesis is that the "smart money" has been systemicly ignoring the potential of ESG positive buisnesses which is suspect

[BitsOfInterest]

I'm holding the Vanguard ESG total market funds for both my US and International market exposure. They have a simple exclusion for fossil fuels, tobacco, gambling so you're slightly overweight tech without just buying QQQ. They move in between total market and large growth funds. I think it gets rid of some large cap value traps as well. I'll get value from small and mid with high profitability 😜

[papacharlie-niner]

I had heard many criticisms of ESG preference before, mainly that brown companies were being branded as green when they really weren't, just to attract that "banner-minded" feel-good capital, but the counter-productive pressure for brown companies to go browner is interesting and unexpected. What a mess! No wonder BlackRock appears to be doing a 180 on ESG (as of June 2023) after being one of the leading pushers of ESG.

[Bkesal]

Just discovered your channel. Thank you for explaining complex debates in an understandable and fair way - such an undervalued trait.

[Riverdale]

I work for an asset manager and have struggled with this all my career. I am still convinced that impact can be made on the primary market (IPO, bank credit, ...), not so much the secondary.

[arielardila]

I get the green vs brown counterargument but ESG funds also exclude corporations that produce controversial weapons, that have discrimination in their workplace, that irresponsably uses private information, among other things. I think a question we have to ask ourselves is if we are morally ok with our capital going to corporations that do stuff like that.

[McFarlandFinance]

In my opinion ESG started with the right mindset but we all knew from there it would take a non desirable turn when large corporations started getting involved. This is a much broader issue than in just investing. Great video.

[terryadams]

Thanks Ben! Another great "just the fact Ma'am" video!

[Timothyjackzon]

Hi Ben, thank you for this insightful series on ESG investing. In my research I have stumbled upon this paper by LH Pedersen et al. (2021) of AQR which discusses an ESG efficient frontier and specific types of ESG investors. From my understand this paper has gained quite a bit of traction in academia. I would really appreciate if you could include this paper in your future discussions on this topic. Thank you very much in advance.

[Elijah_Lopez]

I was thinking about this yesterday so I searched it up before writing an article. Will watch before writing.

[hypnoitze]

Great video, as always! Thank you! I believe measurement to be an difficult hurdle for ESG investing thus far. Opposed to conventional investing it tries to follow extra financial goals that seem difficult to measure. Hower, I also think this will still be an interesting topic to keep an eye on. With the introduction of ESRS we may develop a more strucutred approach that could help with some of the shortcomings that ESG investing seems to have today. Overall I am quite intregued where this could and will lead us in the future. Thanks again for the good video!

[dylanburrowes]

Something that I find is left out of the conversation is that some investors simply do not want to feel like they are the recipient of profits from industries they find undesirable. I don't think this point in particular is discussed enough, compared to people's desire to outperform the market, or simply "do good".

[TheEquationSlayer]

3:50 Isn’t this only a temporary issue? Eventually the brown firms will struggle to compete and their influence will shrink.

[NeilGirdhar]

Do ESG funds vote differently on corporate actions at shareholder meetings?

[pepperleg]

I bow before your godly wisdom Mr Ben Felix sir

[brookrichardson]

I agree that ESG finds aren't going to have an impact on green firms and brown firms are still going to be brown, but there will be an impact on companies which are more olive coloured and can become green to gain ESG investment.

[thedopplereffect]

Exxon has a higher ESG score than Tesla. Think about that...

[hrishikeshac]

Great video (I've never seen a bad video from you!). However, I think the nuances here are that the studies are critical of ESG's current implementation and branding and a bit of an extrapolation that this would continue into the future. Instead of mistaking its current implementation with ESG itself, we should focus on the premise behind ESG investing and try to solve the issues with current implementation.

[samuel.andermatt]

You talked about brown companies getting browner instead of greener, but what about greener companies gaining market share?