Hot market trends must always be examined through a sceptical lens. It’s all too easy to take the broad acceptance of an idea and assume that the herd has done all the research and thinking necessary to make it bullet proof.
The idea that ESG investing leads to better risk-adjusted returns is one such thematic gaining momentum.
To be sure, there is obviously a need to invest capital more consciously given the precarious social and environmental issues that exist globally. But like any investment there are risks, and those must be incorporated when establishing the suitability of an ESG investment for the individual investor.
“But of course it is the goal of the ESG movement to push investors away from “wicked” portfolios — making their prices cheap and setting them up to outperform “virtuous” portfolios over time! The win-win pitch is a fallacy. Sometimes investors have to choose between their values and their pocketbooks.”
Robert Armstrong, Financial Times US Finance Editor
Read more here The fallacy of ESG investing