Columbia’s Sachs Confronts the Limits of the ESG Investing Boom

Exploding head and rolling eye emojis are regular fixtures in the online chatroom where Lisa Sachs discusses the latest sustainable offerings from the investing world with her fellow academics.

They’re annoyed, and sometimes bemused, by the funds that claim to be aligned with net-zero climate targets or international sustainability goals, yet lack details on definitions, objectives and real world impacts, said Sachs, who heads Columbia University’s Center on Sustainable Investment, which is a joint center of Columbia Law School and the Earth Institute.

As environmental, social and governance investing quickly goes mainstream, so are the misconceptions that markets are addressing and can solve society’s biggest challenges, she said. For investors to play a bigger role in the energy transition and counteract concerns of greenwashing -- exaggerating or misrepresenting environmental benefits -- they need to rapidly escalate pressure on the biggest corporate polluters, ratchet up investments in clean technology and put an end to lobbying that blocks robust public policies, she said.

“It is time to be honest about ESG’s purpose, its forms and limitations,” Sachs, 39, said. “Most ESG approaches have little impact on the real economy and have a real risk of becoming not only less useful, but obfuscating society’s problems and the responsibility of the financial sector and corporations for those problems.”