ESG Investing Looks Like Just Another Stock Bubble
“Do-the-right-thing” investments have been outperforming, but that has been driven by liquidity and flows rather than an effective strategy.
The froth never lasts.
Photographer: Omer Messinger/Getty Images
The asset-management industry has been struggling for a while, but one category continues to attract assets: ESG, which screens companies for environmental, social and corporate governance factors. Put another way, it seeks to identify companies that strive to do the right thing. ESG-driven assets have now reached $40 trillion globally, which seems to have accelerated during the pandemic.
This turns on its head Milton Friedman’s premise that companies should try to pursue profit above all else and in that pursuit will accomplish good as an externality. Though ESG promoters say that doing the right thing and making money go hand-in-hand, the current thinking says that making money through investments is incidental to doing good.