ESG Investing ‘Ambiguous’


    ESG (environment, social, and governance) investing is “ambiguous,” says Alex Edmans, a professor at the London Business School. Speaking on ‘New Developments In ESG Investing’ Franklin Templeton’s ‘Annual Global Investment Outlook,’ he said if there was only one way to measure whether a company was ethical or not, that would be priced into the stock market and, therefore, nobody would be able to beat the market by trading on that. “It is the subjectivity of ESG which makes it so powerful because it means that other people might make the wrong assessment,” he said. This happens because they focus on the harm metrics and not the net benefit of a company. However, because there is no clear weighting scheme for ESG investing, “we are able to take all things into account. So what this involves is a net benefit test – does the company provide a net benefit to society? Looking across everything that it does, there may be some things which cause harm, but there is value in other places, he said. In fact, this is one of the objections people have. It’s subjective and they want one number to assess whether a company is good or bad. Now that ESG is becoming mainstream for all investors, it’s about a choice to buy companies that actively create value for wider society. “It’s not just moral and ethical reasons because there’s a business and financial piece behind that,” he said.