The end of ESG

Abstract

ESG is both extremely important and nothing special. It's extremely important because it's critical to long-term value, and so any academic or practitioner should take it seriously, not just those with "ESG" in their research interests or job title. Thus, ESG doesn't need a specialized term, as that implies it's niche-considering long-term factors isn't ESG investing; it's investing. It's nothing special since it's no better or worse than other intangible assets that create long-term financial and social returns, such as management quality, corporate culture, and innovative capability. Companies shouldn't be praised more for improving their ESG performance than these other intangibles; investor engagement on ESG factors shouldn't be put on a pedestal compared to engagement on other value drivers. We want great companies, not just companies that are great at ESG.

Green finance, sustainability disclosure and economic implications

“…As green projects usually require significant capital investment with long-term effects (Edmans, 2023), the presence of funding-oriented and policy-guidance mechanisms, along with the reputation gain of being green, reduces the overall risks of the projects. This will force firms to consider environmental factors in production, operation and innovation activities, and it can reduce social and reputational risks caused by climate change, environmental pollution and other environmental damage.…”

“…For instance, Edmans (2023) posit that insights from mainstream finance and economics can be applied to ESG, as ESG "is economically no different to other intangible assets that create long-term financial and social value." The same applies to green finance.…”

“…The first motive is to change firm behavior in improving their green practice, thus creating more positive externalities. This second motive can be achieved through two channels of exit by divesting from nongreen companies (Edmans, 2023) and voice that involves engaging with a company through voting, private meetings, and public activism to cut its carbon footprint (Edmans, 2023; Hoepner, Oikonomou, Sautner, Starks, & Zhou, 2022).…”

“…For instance, Edmans (2023) posit that insights from mainstream finance and economics can be applied to ESG, as ESG “is economically no different to other intangible assets that create long-term financial and social value.” The same applies to green finance. The rich literature on corporate finance research has examined how to create long-term financial values and how to value investments, and research on asset pricing has explored how the stock market prices risks.…”

Are Sustainability-Linked Loans Designed to Effectively Incentivize Corporate Sustainability? A Framework for Review

“…In particular, we analyze whether the KPI design of the SLLs gives rise to effective incentives in order to improve corporate sustainability performance. Further, by analyzing the underlying KPIs, we follow the research advice of Edmans (2022) to gather and assess qualitative ESG assessments.…”