At record levels, investors are aligning their investments with their values and sustainability goals. Investment banks and firms are listening to their shareholders' and customers' demands for more Environmental, Social, and Governance (ESG) considerations and are adjusting their investment strategy to meet market demand. Yet, at the same time, influential business leaders are using their financial muscle to try to knock down ESG and progress. Elon Musk recently called ESG "the Devil" and anti-ESG activist investors, including Peter Thiel, Bill Ackman, and Vivek Ramaswamy, are waging campaigns to force companies to focus on profits at all costs.
The battle lines have been drawn between most investors who want ESG investment options and some of the deepest pockets that appear to care about their fortunes over doing well and doing good.
For businesses, it's time to pick a side, and the right course of action is to start taking meaningful and verifiable ESG action. Entertaining the anti-ESG activists with their antiquated thinking puts the future at risk and places the company in conflict with most shareholders, employees, and customers.
ESG investing had a banner year in 2021, with an estimated $120 billion poured into sustainable investments, which is more than double the $51 billion in the previous year. When the lens widens, the amount invested in ESG has experienced an eye-popping 25-fold increase from 1995 to 2020. Some estimates are even higher. Interest in ESG options is at an amazingly high level too. A Capital Group survey found that "investors are open to discussions on ESG—with nearly 75 percent expressing at least some interest in the concept." Investors across all generations are interested in ESG options, not just millennials who created the initial wave of growth. And growth will continue as Generation Z enters the investment market in larger numbers.
With ESG investing growing very rapidly and well positioned to continue its explosive growth, many companies claim to have ESG policies and practices that they employ and follow because they fear being left out of this 21st Century's financial gold rush. Until recently, highlighting ghost ESG activities was easy because scrutiny was absent. After two significant enforcement actions by the SEC this year and commitments by some of the largest investment banks and firms to provide their customers with ESG options, companies must recognize that it's time to establish and engage in authentic and verifiable action or risk future capital infusions. Make no mistake, there are options for investors and Wall Street with a growing number of companies considering ESG within their fiduciary responsibilities.
With the myriad of environmental and social challenges facing our world, communities, and families, ESG investment options are needed because they will drive action across industries. And it's evident that investors want to support companies that address climate change, deforestation, diversity, equity, and workplace issues through ethical business practices and achieve financial returns similar to or better than traditional investments. This outcome is a win-win outcome for businesses and investors.
ESG matters, and verifiability is the key to a better future. One of the arguments against ESG investing is that ESG results can't be measured. That is not true. More than a decade ago, we heard that there is no way to objectively measure Diversity, Equity, and Inclusion (DE&I), but standards of performance are being set and independent third-party certification is taking place. Measuring DE&I claims is working well and playing a vital role in solving issues at the intersection of business and society. And independent third-party certification informs employees, investors, and consumers where companies stand in their DE&I journey and on some ESG-related aspects.
ESG investing has arrived significantly, despite opposition from anti-ESG investors who are driven by their desire to maximize quarterly returns for their benefit. The growth and bright prospects for ESG investing exist because ESG truly has the power to create real world change that benefits companies and all of us. Let's scrutinize the claims and actions of companies and investment banks and firms so we can meaningfully measure progress and identify areas where more work is needed. Measurement should not be used to punish companies but used to make adjustments. Let's not waste this opportunity to tackle the world's pressing problems and invest in our future.
Aniela Unguresan is the Founder of EDGE Certified Foundation. Prior to founding these enterprises, Aniela acquired extensive professional experience as a consultant with Arthur Andersen and Andersen Consulting.
The views expressed in this article are the writer's own.
Uncommon Knowledge
Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
