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For the first time in decades, environmental, social and governance (ESG) investment growth is slowing. Back in 2000, ESG was almost non-existent. In 2020, the Global Sustainable Investment Review estimated ESG assets at $35 trillion.
As evidenced by documents such as the United Nations Principles for Responsible Investment, ESG is embraced by nearly all global asset managers. While ESG itself is diverse, it has become associated primarily with politically progressive initiatives.
ESG managers have sought to influence corporations, property developers, state and federal governments, and numerous other entities that touch the lives of nearly every person on the planet. Throughout the ESG boom, most retail investors were largely unaware of the policies their investment managers were pushing on their behalf.
In recent years, however, the anti-ESG movement has taken shape. (AP Photo/Mark Lenihan)
In recent years, however, the anti-ESG movement has taken shape. The political left is “greenwashing”, i.e., ESG managers and companies “fake” their dedication to earning commercially useful ESG ratings, rather than justly leaning toward issues of climate and justice. It denounces the idea that there is Other groups, including University of Chicago researchers, state treasurers and attorneys general, argue that ESG leads to poor performance and increased costs, violating fiduciary duty.
What is ESG investing and why some politicians oppose it
And vociferous critics from the political right, including conservative presidential candidates, lawmakers, and pundits, embraced these fiduciary objections, and big wealth managers and financial services firms tried to influence policy. , argues that investor capital should not be used to advance progressive policies that the average American would not accept. and without their knowledge or consent.
As a result, the growth of ESG mandates is starting to slow. Inflows into ESG mandates fell by 76% in 2022, with many funds losing assets. Big money managers like BlackRock, SSgA and Vanguard have all announced changes to their voting approaches.
The average American now perceives ESG in ways that weren’t quite the case five years ago. Many now advocate a “return to neutrality” approach, accepting the idea that investors should care only about shareholder returns, not the social impact of companies and investments. .
While the growing awareness of ESG and the specific issues it drives is positive, it would be a mistake for investors to completely abandon the idea of embedding values into their investments.
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ESG has reintroduced value-based or ethical investing to the investment world, a concept that has been around for thousands of years. And while it may be prudent to defuse some of the current political battles within public companies, or to challenge the dominant ESG paradigm on the grounds of ideology, integrity, or performance, value It would be a mistake to completely abandon view-based investing.
The idea that our economic lives, both as individuals and as organisations, should align with our most deeply ingrained values is far older than the ESG movement and as old as civilization itself. The Hebrew Torah, which dates back 5,000 years, provided believers with guidance on proper ethics in dealing with money, loans, and investments. The Koran, Christian Bibles, Hindu scriptures, and scriptures of nearly every religion similarly detail the correct view of money and how to spend it.
Some of the early “negative screens” against investment in modern society can be traced to Methodist minister John Wesley, who condemned investment in alcohol, tobacco, or other “sinful” industries.
And the modern activist investment movement probably traces its origins to Anglicanism. In partnership with GM’s only black board member, a Baptist minister named Leon Sullivan, the church’s investment department submitted a resolution in 1971 to end GM’s operations in apartheid South Africa. Although the church resolution failed, public outcry and Sullivan’s continued advocacy eventually changed not only GM’s operations in South Africa, but the entire approach of American corporations through the so-called “Sullivan Principles.” became.
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The answer to the modern ESG movement is not to give up values in investing. It is impossible. Rather, it is a new dialogue about the choices investors have to express their values through their investment capital, and a set of forward-looking visions of the impact capital has on the world.
Faith-based investing may offer just such an option. Islamic Shariah Investing, Biblically-Based Responsible Investing, Michael Eisenberg’s “Contract Capitalism,” and Faith-Driven Investing Frameworks all aim to invest based on their faith. This often involves negative scrutiny, as in Wesley’s time, but it also advocates for companies to adopt policies that promote human prosperity, such as the benefits of pastoral or adoption, It also manifests as active engagement, such as stepping up substantive efforts to combat human trafficking in chains. .
Some of these values overlap with those of ESG investors. Many people do not. These faith-based frameworks represent an understanding that capital does have power and that the privilege of wealth is complemented by the responsibility to use it well.
The faith-based investment space is currently small. Sharia finance is dominant in certain markets. My estimate is that the share of explicitly Christian approaches is between $150 billion for him and $250 billion for him, but small compared to ESG’s trillions of dollars. However, the recent crisis of confidence in ESG frameworks could lead to the emergence of a more diverse and vibrant set of options.
Perhaps there is no better source of information for producing such a constructive framework than the faith traditions accepted by the majority of the world’s people.
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All investments are impact investments. All the money we spend on work has a positive or negative impact. It’s encouraging that people are waking up and questioning the current dominant movement. But it would be a shame to abandon the whole notion of value in investing when asking the specific value of ESG.
People can and want to have a positive impact on the world through financial capital. Those who believe his traditional ESG approach is wrong should not just reject it, but promote a constructive vision of a thriving market instead.
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