ESG (Environmental, Social and Governance) investing has received increasing attention in recent years, but there are also critics who have concerns and warn of a bubble. Some of these concerns are:
- Performance: critics argue that ESG investing can hurt performance by focusing on companies that meet certain environmental, social and governance standards rather than those that promise the highest returns.
- Definitions: There are no uniform standards for evaluating companies on ESG factors, making it difficult for investors to assess companies' performance in these areas.
- Potential conflicts of interest: critics argue that ESG investments can be supported by certain interest groups that pursue their own agenda rather than representing the interests of investors.
- Costs: Critics argue that implementing ESG standards and monitoring compliance can add costs that negatively impact returns.
There are also some risks associated with the requirement by regulators to include ESG criteria in the investment process as a decision-making criterion.
One of them is that the application of ESG criteria are subjective and that there are no generally accepted standards for their evaluation. As a result, it is difficult to compare and evaluate companies' ESG performance, which affects investors' decisions differently.
Another risk is that the inclusion of ESG criteria in the investment process may affect the financial performance of companies and impact the profitability of investments.
Another risk is that incorporating ESG criteria into the investment process may result in companies transferring their costs to consumers, leading to higher prices for products and services.
An important aspect that should be considered in this context is also the role of active investors who exercise their voting rights at the general meeting. An active investor who invests in companies with a poor ESG standard and exercises his voting rights accordingly can make a greater contribution to improving the situation than if he invests in companies with a high ESG standard.
By exerting influence on company policy, they can work towards a more sustainable business policy. Responsible investors who want to make a positive contribution to sustainability should therefore invest in companies with lower ESG ratings.
Alternatively, regulators could encourage companies to improve their environmental and social performance by introducing taxes or levies on negative environmental and social impacts. Regulators could also create incentives by granting tax breaks to companies with good ESG ratings.
Investors should be aware that the application of ESG criteria in their investment process is subjective and that there are no generally accepted standards for evaluating ESG performance. However, they should seek to actively use their voting rights and influence the business policies of companies to make a positive contribution to improving sustainability.
It is important to note that ESG investing is not a guarantee of positive social and environmental impact, but a way for investors to align their investments with their personal values and goals.