Practical Applications of ESG Investing: Conceptual Issues

Abstract

Our understanding of what exactly ESG investing is, and how successful it is at achieving various desired outcomes, is complicated by several conceptual drawbacks. In ESG Investing: Conceptual Issues, from the Winter 2020 issue of The Journal Wealth Management, Bradford Cornell (Anderson Graduate School of Management) asserts that the very nature of what constitutes an ESG investment is unclear–and that there are no standard measures for evaluating how effective each one is at achieving its desired social outcome. Additionally, while billions of dollars are pouring into ESG investments, the popularity of “green” equities means lower returns, though in some cases upside can be mined by actively “greening” and selling off targeted investments. Practitioners who advocate abandoning the usual imperative to maximize shareholder value in favor of a more holistic stakeholder model are asking corporations to shoulder the burden of solving social problems. Public policy, Cornell says, should be left to democratically elected leaders, not corporate executives.

TOPICS: ESG investing, portfolio construction, wealth management