ESG investing: How markets are going the wrong way to save the planet

Name: Countries across Asia step up Covid-19 restrictions in fear of new virus wave
Uploaded: 2020-07-19T17:00:14.000Z
Duration: 3 min 50 s
Description: Countries across Asia step up Covid-19 restrictions in fear of new virus wave

Worthy as its basic aims are, ESG fails to offer direct routes for private investors to fund critical projects at scale

The participation of governments and multilateral development agencies, for example, is needed, to provide a pipeline of projects and markets to help finance them

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Anthony Rowley

Published: 1:00am, 20 Jul 2020Updated: 2:29pm, 19 May 2021

So-called ESG investing has become quite popular nowadays. Everyone from leading financial institutions to retail investors is so on board that the term might be thought to stand for “effective solutions guaranteed” rather than “environmental, social and governance” investment, but ESG is no panacea.

Unlike Europe and the United States, China is experiencing a fairly slow transition to ESG. Its relatively cautious approach to this essentially market-driven way of achieving social and economic goals may be vindicated, though, if ESG proves less effective than a more state-led approach.

ESG claims to represent trillions of dollars of equity and debt funds under management. The danger is that, worthy though its basic aims are, it could distract private investors from the need to supply funds to finance critical economic and social projects by more direct routes.

Even before the advent of Covid-19, the United Nations had identified the need for colossal investments in its Sustainable Development Goals (SDG) that could cost anything up to US$70 trillion in total during the next 10 years. The Covid-19 pandemic will increase this sum as advanced and developing nations engage in a desperate struggle to provide better medical facilities, sanitation and other essential physical infrastructure, let alone tackling climate change, poverty and myriad other challenges.

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Countries across Asia step up Covid-19 restrictions in fear of new virus wave

For a long time, portfolio investors regarded socio-economic spending as the province of governments. This began to change with the advent of a generation of millennials who were more socially conscious than their elders and who wanted to engage in “sustainable” investing. They faced a confusing variety of “sustainable, responsible, ethical and green” investments until then US secretary general Kofi Annan took the lead and invited CEOs of the world's leading firms to adopt ESG investing.