On November 13th the Wall Street Journal published an article entitled “A Socially Responsible Strategy Can Be Tricky” that largely took to task Environmental, Social and Governance (ESG) investing. Though the author rightly identifies the subjective, and at times confusing, nature of ESG criteria standards (something Dana has previously discussed), the majority of the article is a somewhat cynical view of ESG investing as a worthwhile economic endeavor.
On investing in companies that exploit their workers or use hazardous products, the author argues the trouble is with the timing. “The trick is to tell when it will happen,” they wrote. “Exploitative companies might be able to carry on for a long time, or be found out tomorrow, and there is no simple way to predict which a stock is.” On considering a company’s environmental footprint in the analysis process, the author argues pollution is cost-effective. “Without [environmental] action, the companies will continue to make stuff for less than the true economic cost. Some companies might face consumer backlash, but in principle being able to pollute for free should boost profits.”
We have been managing ESG strategies for almost two decades and have watched with encouragement as more investors embrace the consideration of ESG factors into their investment analysis criteria. We welcome reasoned, critical analysis of ESG’s statistical benefits to the investing public. Although we have highlighted recent studies showing ESG outperformance, we understand there is still debate in this area. We also firmly believe that there is profitability in not exploiting workers, in not using hazardous products. We believe environmental pollution carries real economic costs for polluters. We hope the embrace of these positive factors continues.
Have questions about ESG? Feel free to contact us.
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