ESG investing: Does it work?

The planet is overheating and the oceans will soon contain more plastic than fish. At the same time, social inequalities persist and even increase, despite the spectacular increase in "wealth" in recent decades.

We often blame companies - their pursuit of profit at all costs and their governance perceived as deficient - for the ills that afflict us. Indeed, even if we all must do our part, environmental problems and social inequalities cannot be resolved without a change in the behavior of many large and not-so-large large companies.

Never short of ideas, the investment and fund management industry believes it knows how to influence these companies while generating good returns: responsible investment. By selecting company securities to build a portfolio, not strictly on profitability criteria, but also considering their impact on the environment and on society, as well as the way in which they are managed, administered and controlled, they think we can change their behavior and have a real impact.

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The idea seems good: by buying the shares of “good” companies, we push up their price – more than those of their competitors whose behavior is less virtuous. Not only are they thus rewarded for their good behavior, but their high share price reduces their cost of capital, which further increases their competitive advantage. A virtuous circle!

That's the theory, but in practice, does it work?

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