ESG: The Invisible Fist Of The Economy
Historically, many investors have added a “values” overlay to their investment preferences. The two primary values-based approaches are Socially Responsible Investing (SRI) and Impact Investing (IR). To these has been added a new acronym, ESG (Environmental, Social, and Governance). While these terms are frequently used interchangeably, it is important to understand some critical differences to see why ESG is so problematic.
In this country, churches were the earliest adopters of SRI. Through SRI’s “negative screening” approach, investments are identified and avoided in objectionable industries such as tobacco, firearms, and gambling.
Rather than avoiding certain investments, IR’s strategy is to invest in companies with potential solutions to problems important to an investor. For example, an impact investor interested in fighting cancer would invest in companies working on cancer therapies or cures.
Both SRI and IR are legitimate values-based investment strategies that operate within the parameters of free-market capitalism. They represent constructive ways for investors to express their views, find solutions to significant problems, and participate in the capital markets without compromising their values. – READ MORE
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