Ethically-minded investors are growing more skeptical of ESG investing, wondering whether it actually furthers environmental or social justice aims. At the same time, demand for ethical investing is only going to increase as progressive millennials and Gen Zers accrue more financial assets, often by inheriting that money from their conservative parents.
If the long-anticipated SEC rules on ESG do not satisfy them, a prospect that seems increasingly likely as financial services industry groups push back on proposed disclosure rules, we should expect to see an ever-increasing appetite for alternate investment approaches. Even if the final SEC rules are strong, ESG can never completely starve industries like fossil fuels. As companies and funds dump their coal mines to bump up their ESG scores, for example, those mines just get bought up by private equity firms, resulting in money moving around but no fundamental changes. Consider: more than a third of all assets under management are now in socially responsible or ESG funds, yet global emissions continue to increase.