By Hans Taparia
Jeff Hutchens/Getty Images
Wall Street has been hard at work on a rebrand. Gone is the “Greed is good” swagger that embodied its culture in the 1980s. “Greed and good” may best summarize its messaging today as it seeks to combine high profits with lofty intentions.
“To prosper over time,” Laurence D. Fink, the founder and chief executive of the investment giant BlackRock, wrote in a remarkable public letter in 2018, “every company must not only deliver financial performance, but also show how it makes a positive contribution to society.”
At the heart of this rebranding is a new industry of funds, created by BlackRock and peers such as Vanguard and Fidelity, that purport to invest in companies that are good corporate citizens — that is, companies that meet certain environmental, social and governance criteria. These E.S.G. criteria are wide ranging, pertaining to issues such as carbon emissions, pollution, data security, employment practices and the diversity of corporate board members.
On the face of it, E.S.G. investing could be transformative, which is why it’s one of the hottest trends in the world of investing. After all, allocating more capital to companies that do good helps them grow faster and lower their cost of capital, creating an incentive for all companies to be more socially and environmentally conscious.
But the reality is less inspiring. Wall Street’s current system for E.S.G. investing is designed almost entirely to maximize shareholder returns, falsely leading many investors to believe their portfolios are doing good for the world.
