Tim Mohin: Is ESG Beyond Redemption?
2023 has been a tough year for the beleaguered abbreviation ESG, with a global backlash against the term and money pouring out of ESG funds, three headlines this week highlighted ESG’s rough patch:
FT: “ESG is beyond redemption: may it RIP”
NYT: “Is ESG Falling Out of Favor?”
CNN: “ESG investing is dying on Wall Street. Here’s why”
Both the CNN and NYT articles refer to the declining capital flows into ESG funds, which just suffered their worst quarter. For the first time, US money managers closed more ESG funds than they opened.
The NYT article points to the Republican boycotts, a crackdown on greenwashing, and subpar investment returns leading to the shrinking ESG fund market. However, despite the slump, the ESG fund market isn’t going anywhere soon.
Related Article: Tim Mohin: ESG Backlash Hits Europe, Fails. Standards Clash
According to Morningstar’s Alyssa Stankiewicz, MBA, the main reason for ESG fund divestments was unmet “performance expectations” rather than sustainability advocates having “a change of heart about topics like climate change or diversity.”
CNN took a more negative view, claiming: “ESG investing is fundamentally broken.” Robert Jenkins of financial data provider Lipper said, “When you have a fracker getting an ‘A+’ on the environment and you have a company like Netflix getting a ‘D-‘ on the environment, that makes no sense.” He claimed he would abandon the concept and opt for “responsible investing” to drive capital toward sustainable endeavors.
The Financial Times article, an op-ed written by Stern School of Finance Professor Aswath Damodaran, opened with the scathing line, “Born in sanctimony, nurtured with hypocrisy and sold with sophistry, ESG grew unchallenged for a decade, but it is now facing a mountain of troubles, almost all of them of its own making.”
Damodaran criticizes ESG’s continually evolving vague definitions, unsubstantiated claims of reducing risk and increasing value, and the inconsistency of promoting both higher returns and lower risk. Ultimately, he concludes that ESG is beyond redemption, driven more by good intentions than sound financing.
This Smart Read article is contributed by Tim Mohin, Global Sustainability Leader, BCG. Every week ESG News delivers smart commentary from ESG practitioners and experts to unpack issues of the week. Email here if you are interested in submitting an article liam.marais@esgnews.com
Tim Mohin is weekly smart read contributor to ESG News. Tim is globally recognized sustainable business executive. He is a partner and director for the Boston Consulting Group (BCG) in climate and sustainability.
Prior to BCG, Tim was the EVP and Chief Sustainability Officer with leading carbon accounting software company – Persefoni . He is the former Chief Executive of the Global Reporting Initiative (GRI), the world’s largest sustainability reporting standard.
He brings more than 20 years’ experience leading sustainability functions at three Fortune 500 companies – Intel, Apple and AMD – Tim has deep experience developing strategies to embed sustainability into business. Tim also led the development of environmental policy in the Environmental Protection Agency and the United States Senate, including the Clean Air Act. He is a sustainability advisor to the Financial Conduct Authority of the United Kingdom, the Board of BASF, Workiva and others. Previously, Tim was a founder and Chairman of the Board for the Responsible Business Alliance.
He is the author of Changing Business from the Inside Out and a frequent speaker and writer on sustainability and corporate responsibility. Tim writes a weekly ESG Newsletter, and is one of LinkedIn’s 2022 Top Voices in the Green Economy. He is consistently recognized in the top 20 of Corporate Social Responsibility Influence Leaders.
