Hi Peter,
Thanks for the additional comments.
I think for the benefit of other readers and this discussion, it's worth clarifying that we're discussing two different research notes.
1) ESG Investing: Too Good to be True? This research note uses ESG data from a well-known provider and shows that theoretical long-short portfolios generated positive excess returns since 2009. However, the analysis highlights that most returns can be explained by common equity factors, which is in line with other researchers' findings. Here is a quote from the latest JP Morgan Quant conference summary: "Since ESG is aligned with Quality/Low Vol.....".
2) Why Pension Funds & Millennials Should Avoid ESG. This research note analyses realized returns from ESG ETFs in the US and highlights that these slightly underperformed their benchmark since 2005. Given the evidence, we make the case that financially-impaired investors like public pension funds (only 70% funding in the US) and Millenials should avoid ESG as they need to maximize returns and avoid unnecessary risks.
Both two articles are about ESG investing, but one with theoretical and the other with realized returns, and have different objectives.
Regarding the data: If I recall correctly, you initially wrote that the 15 years of realized returns is somewhat limited and I simply agreed to that. In some of our other analysis we go back to 1926. Naturally this isn't possible with ESG.
I think your other points essentially express that you believe that a stakeholder approach generates more for shareholders than a shareholder approach. I also believe that certain corporate characteristics like having a sound corporate governance are accretive to shareholders.
However, there will also be capital misallocations due to ESG and screening out entire industries, some which are highly profitable, isn't sensible, so overall my theory is that ESG strategies will slightly underperform benchmarks. My theory is only supported by 15 years of realized returns and so it will be interesting to see if that will be validated over time. Personally, I would be delighted to be wrong.
Finally, introducing a different perspective to this discussion: Private equity firms are focused aggressively on creating shareholder value, typically at the expense of stakeholders like employees. They seem to be rather successful with this approach, at least judging by the AUM they've been gathering.
Best regards, Nicolas