What if a new investment strategy could transform the private sector from a greedy, scheming machine into a shining beacon of social and environmental progress? What if we could build a private sector that is not only profitable, but purposeful?

The unfurling leaves and futuristic rooftop solar arrays on companies’ sustainability webpages give the illusion that the answer to each of those questions is YES—the private sector can, and is, taking bold steps to fight the crisis of our generation. 

ESG investing promises to do just this. ESG refers to the consideration of Environmental, Social, and Governance factors in risk assessment and portfolio construction. Investors are turning to ESG as an opportunity to build resilience in the face of climate change while hoping to beat their competitors to higher long-term returns. Approximately one third of professionally managed assets in the US consider ESG factors—a 42% increase between 2017 and 2019. 

ESG investing is more complicated than an initiative born out of the good intentions of corporate leaders. ESG ratings reflect companies’ resilience to risks such as climate change, not necessarily the strength of their commitments to improving ESG factors. The problem is that rating agencies often grant inflated scores to companies which still commit atrocities. For example, BP performs poorly on biodiversity and safety factors, yet received an average score of BBB from MSCI for exemplary performance on the corporate governance factor. That’s right—a leader of the gas and oil industry is supposedly ahead of the curve for ethical behavior.

Reforming the private sector is critical for solving climate change, given that the top 100 producers of emissions are responsible for 71% of global industrial emissions since 1988. The question is whether ESG investing can drive the level of change that is necessary to tackle the climate crisis. ESG metrics are only numbers on a screen unless companies harness opportunities to catalyze monumental change in the private sector.

Through my public writing pieces, I will demystify the process of ESG investing while investigating how methodologies can better reflect corporate performance. The public deserves to know whether those sustainability commitments are guiding us towards a greener future or tricking us into a tangle of thickets, trapping us as we struggle to escape the grasp of corporate greenwashing.

Wilfredor, CC BY-SA 4.0 <https://creativecommons.org/licenses/by-sa/4.0>, via Wikimedia Commons