NYU business professor criticizes ESG at Morningstar conference (2023)
| Environmental, social, and corporate governance |
|---|
|
| • What is ESG? • Enacted ESG legislation • Arguments for and against ESG • Opposition to ESG • Federal ESG rules • ESG legislation tracker • Economy and Society: Ballotpedia's weekly ESG newsletter |
Last week, investment research company Morningstar held its annual conference in Chicago, hosting Aswath Damodaran, among others. Damodaran, a professor of finance at NYU’s Stern School of Business and ESG opponent, criticized the investing strategy in a talk. Morningstar is the parent company of Sustainalytics, one of the world’s foremost ESG rating services.
| “ |
ESG is a failure, its advocates are to blame, and the concept should be retired, according to Damodaran…. Damodaran is known as the “dean of valuation” for his analysis of security prices. He touched on the topic of valuations, but his most provocative remarks were about ESG. Once the “S” was put in the middle of ESG, the concept was doomed, he said. It is impossible to achieve a consensus on any social issue, much less the full range of socially responsible concerns that permeate the ESG landscape. Indeed, the fundamental issue for Damodaran is that there is no consensus about what constitutes “good” or “bad” companies when it comes to ESG…. Advisors are putting trust in a scoring system that companies will “game,” he said. “We created a scoring system that makes us feel we are doing good rather than a system that does good.” “The best thing would be to retire the concept,” he said. Damodaran said that ESG proponents oversold the concept when they claimed that ESG could deliver excess returns (alpha) along with values-based portfolio construction. A constrained strategy (like ESG) cannot beat an unconstrained one. The positive alpha that has benefitted some ESG investors is a result of outsized flows into those strategies, driven in part by aggressive asset management marketing. Once those flows subside, returns from ESG investing will suffer. “If your clients think they can earn alpha,” he said, “bring them back to reality. You can’t claim ESG is always good for returns.”… Eric Hofer, a great American thinker, once wrote that, “Every great cause begins as a movement, becomes a business, and eventually degenerates into a racket.” Damodaran has put ESG in the same context: “These ideas start by repackaging an existing concept or measure and adding a couple of proprietary tweaks that are less improvement and more noise. Then they get acronyms, before being sold relentlessly.”[1] |
” |
See also
- Environmental, social, and corporate governance (ESG)
- Economy and Society: Ballotpedia's ESG newsletter
External links
Footnotes
- ↑ Note: This text is quoted verbatim from the original source. Any inconsistencies are attributable to the original source.
| |||||||||||||||||||||||
