NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Tuesday, August 8, 2017

It’s hard to believe that roughly 26% of professionally managed money worldwide is pegged to environmental, social and government strategies (ESG). At the surface, this seems like an unrealistically high number, given that asset managers have offered scant details about how they define their ESG criteria. So, where does the truth lie? The short answer is we don’t know, and the reality is it probably doesn’t matter.

Industry jargon is part and parcel of the financial markets. “ESG integration” has become a common buzz term on Wall Street following decades of rhetoric about the need to factor environmental, social and governance risk when investing. After all, the risks and opportunities posed by climate change, executive compensation and social responsibility are too big to ignore.

Today, ESG-focused funds consist of fossil fuel companies and globalization heavyweights like Wal-Mart and McDonald’s. Banks with scandalous pasts, like HSBC, are also pushing the ESG agenda, leaving many in the financial community wondering about whether we need an industry-wide definition of the term.