ESG is often promoted as a means of investing and producing higher returns while doing good. Yet, that seldom holds up to testing, whether looking at real life cases, or when subject to empirical testing.

For instance, if I had used ESG as a screening criteria, then I likely would have been invested in firms that were heavily invested in Russia prior to the start of the conflict in Ukraine. Likewise, I would have likely been substantially underweighted in the only sector that has generated positive investor returns over the past year - dirty energy with it's low ESG ratings.

In empirical tests, ESG often looks promising. However, after controlling for industry affiliation, and company fundamentals, ESG quite often becomes statistically insignificant as an explanatory variable for investment returns or company valuation.

Call me cynical, but I'll take Milton Friedman any day - let the firms do what they do best, and have government inact legislation that sets the conditions (E,S, and G) under which we want firms to operate. Otherwise, you'll get greenwashing by firms and virtue signalling by poor performaning investment managers who shrug off poor fund performance with claims that the fund's investments have so many other preferable socially acceptable characteristics.