Commentary
Remember the hole-digging rule? When you’re in a hole, stop digging. Digging deeper when you’re already in a hole only means steeper, more desperate climbing when it’s finally time to get out.
Ever-deeper hole-digging describes the state of ESG investing today. Though more than $50 trillion has been committed to ESG and other sustainable investment strategies, the world is no closer to achieving its net zero objectives, nor is the global economy more socially inclusive than it would have been otherwise. These are not my findings, mind you; they are the conclusions of Professors Davidson Heath, Daniele Macciocchi, Roni Michaely, and Matthew C. Ringgenberg, who studied the behaviors of hundreds of firms over the past decade. ESG funds haven’t done much incremental good. Neither are they doing very well. As an asset class, ESG equity funds have underperformed broad market indices by hundreds of basis points in recent years. Underperforming the market while failing to achieve any of one’s desired environmental and social objectives is the essence of hole-digging….