Earlier this week, Leslie Norton of Morningstar responded to the anti-ESG trend with her “Top 10” list of why ESG isn’t going away. Norton acknowledged that some criticisms are valid – such as those concerning greenwashing and gaming ESG ratings. But she continues:
“… as ESG analysis and sustainable investing evolve, the field must address each [criticism]. The position of many Republicans on ESG presents a new type of challenge that has moved from stump speeches during an election year to anti-ESG exchange-traded funds and will require continued engagement from everyone.”
Here is Norton’s Top 10:
- ESG Offers a Fuller View of Risk
- Identifying the Risks Leads to Opportunities
- Rise of Stakeholder Capitalism Is Good for Companies
- Regulations Are Leading to Improvements
- Sustainable Investing Is Growing …
- … Particularly Among Women and Young Investors
- Performance Is on Par
- More Shareholders Are Voting
- Countering the Broad Consensus on ESG Would Be Difficult
- ESG May Be Better for Investor Outcomes
In my view, number 3 needs a bit of clarification. Norton offers her view that stakeholder capitalism to her means that “[c]ompanies are reshaping themselves to appeal to talented workers who are more diverse than ever and to customers who are increasingly consuming in line with their values.” As one supporting point, she point to the increasing use of ESG metrics in executive compensation:
“These metrics are something that Lisa Pollina, who serves on the board of directors for insurer Munich Re and water technology firm Energy Recovery ERII, already looks at. ‘From a board perspective, I’m looking at governance, compliance, ethics, business continuity,’ she says. ‘I’m looking at developing diverse talent, understanding and looking at climate change. Does any of that go away if you don’t call it ESG? No.'”
I completely agree with the point Pollina makes about whether what you call corporate ESG efforts is important. I myself have said “Does it really matter if an initiative is called sustainability, cost optimization or flying pigs?” Even so, I wish Norton had chosen different wording other than “stakeholder capitalism”.
