ABSTRACT
Humanity is faced with multiple interconnected challenges such as climate change, the rise of populism, secular stagnation, rising levels of indebtedness, and a growing disenchantment with globalization and capitalism. In this context, the rise of environmental, social, and corporate governance (ESG) is an auspicious countervailing trend, which has rapidly reached considerable proportions, with currently over US$30.7 trillion of assets being subjected to some form of ESG screen (GSIA, 2018). Yet, in many quarters the responsible investment movement is still viewed with skepticism and poorly understood. One key reason for this confusion is that ESG reflects multiple different purposes ranging from simply an expression of an ethical stance, to the aspiration to substitute for the failure of governments, to the belief that corporations can do well by doing good. These different objectives are dynamically interconnected, with the ethical stance of the pioneers alerting other actors to a long-term problem that needs to be addressed (as illustrated by the divestment from coal mines and other fossil fuel energy companies). Ethical investors, as well as socially and environmentally minded investors and governments, can all, at different levels, accelerate the integration of ESG dimensions into market conduct, including through the development of financial innovations that allow investors to align their portfolios with a sustainable capitalism without necessarily sacrificing returns. These diverse ESG constituencies, however, are engaged in a complex game where simultaneously the private sector is mitigating some of the failings of governments and the public sector is increasingly free-riding on the social and environmental involvement of corporations.
