Rather than critique the major points of this article, I’m going to briefly address a small, but important point made towards the end of the article. Specifically, the authors state “Yes, ESG strategies outperformed in 2020, and demonstrated that sustainability can generate returns.”.

This claim isn’t new, and the authors aren’t in the minority in making it as there has been an abundance of average research supporting this claim. However, much more rigorous research suggests otherwise. Much of this “alternative theory” line of work lends support to the view that growth outperformed, not ESG (for instance, see Nicolas Rabener in this very blog with his piece titled “ESG Investing: Too Good to Be True” published in January 2019). In a fairly recent paper in the Journal of Business, Finance, and Accounting, Bemers, Hendrikse, Joos, and Lev found that, rather than just growth, it was firms that invested heavily in intangibles were the ones which were able to outperform during the early days of the pandemic (ESG did not immunize stocks during the COVID-19 crisis, but investments in intangibles did, JBFA, February 2021, 433-462).

As if this isn’t enough of a criticism, ESG has been presented as an investment panacea – screen for the firms with high ESG scores and you can’t fail. Yet, since fall of 2020, those very same high ESG stocks have underperformed, beat out by those filthy sin stocks that so many now days seem to want to disappear from the earth forever.

I can only speak for myself, but when I invest my money, I want high returns so as eventually be able to provide for myself in retirement. If society decides that maintaining a low carbon footprint is what it desires, then fine, legislate the criteria which firms must follow. Otherwise, let firms do what they do best, produce products and services that consumers desire and maximize return to shareholders in process.