Ron Ivey in American Affairs Journal:
SG—environmental, social, and governance—investing has become one of the fastest growing areas of finance in recent years and increasingly influences capital allocation decisions for investors and firms. But what exactly is ESG, and does its actual impact on a broad group of economic “stakeholders” match its advertising? As ESG funds have grown their assets under management in recent years, ESG investment criteria have, if anything, only become more contested.
Indeed, Bloomberg Businessweek recently revealed that the largest for‑profit accreditation company of corporate environmental and social responsibility, MSCI, does not actually measure a corporation’s impact on society or the environment, but rather assesses how companies are reducing regulatory and brand risks for their shareholders.1 New York University finance professor Aswath Damodaran recently lamented that the ESG ecosystem is merely a “gravy train” for consultants, ESG fund managers, and investment marketers, leading to little social benefit for stakeholders outside of the self-serving circle of the ESG industry.2 Former Facebook executive, SPAC promoter, and Social Capital founder Chamath Palihapitiya has made an even bolder statement that ESG funds and evaluation agencies like MSCI are fraudulent products.3 He argues that these groups use the veneer of social and environmental responsibility to reduce regulatory oversight for multinational behemoths while allowing them to apply for negative interest rate loans from central banks. From Palihapitiya’s perspective as a venture investor, these “green washed” and “social washed” funds attract investment away from actual businesses that are addressing social and ecological challenges more fundamentally in their business models.