David F. Larcker, Amit Seru, and Brian Tayan: 'ESG suffers at its core from three main problems: It brings uncertain benefits, at uncertain cost, with no clear identification of who will pay for it.' sponsored HooverInst ConsumersFirst
ESG—short-hand for environmental, social, and governance—is intended to reorient capital and governance around stakeholder welfare, away from its traditional primary focus on shareholder value.
Doing so, however, is costly. Companies cannot improve upon what they are already doing unless they invest significant sums of money. In the long run, ESG advocates expect the returns from these investments to outweigh any cost, leading to profits that are larger, more sustainable, and more equitably distributed across stakeholders.
At the same time, the challenges of ESG are becoming more evident. Most CEOs and CFOs do not subscribe to the belief that ESG brings long-term gains despite near-term costs. They are most likely to say its costs will never be fully recovered. General Counsel express significant concern about the legal and regulatory risk of ESG activities.
At the same time, ESG has become highly politicized. Those on one side of the aisle are doubling down that ESG is critical from a societal perspective. Those on the other are equally adamant that the benefits are too uncertain and the costs too high to bear.
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