Let’s be honest, ESG investing will actually hurt the environment
https://www.cityam.com/lets-be-honest-esg-investing-will-actually-hurt-the-environment/When companies with poor environmental credentials are starved of capital thanks to investors obsessed with ESG, they become dirtier to avoid bankruptcy, writes Matthew Lesh
ESG or environmental, social and governance investing is facing troubles. Higher bond yields drove an astonishing £304m out of the sector in May. This largely reflects a natural market dynamic – investors are chasing higher returns by moving from shares to bonds. Yet perhaps there should be some deeper angst at play. Is ESG investing really everything it is cracked up to be?
It’s easy to understand the underlying appeal. Putting your savings into “good” companies, rather than those amoral profit-seeking entities, feels righteous. But it’s worth unpacking what that means in practice.
The companies that score the highest on ESG metrics, particularly on the environmental side, are the ones that have a relatively low level of carbon per pound of revenue. That means the likes of financial services, healthcare and digital are “green”. By contrast, companies that produce building materials, fertiliser or energy are “brown”. The result of ESG investing is the transfer of capital from good to bad companies – thus it is meant to incentivise “brown” companies to reduce their emissions.
ESG is virtue signaling. It is quixotic.
