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is win win a fallacy when it comes to esg investing european ceo search for digital editions profiles industry outlook management finance world view lifestyle videos awards search for menu profiles industry outlook management finance world view lifestyle videos awards digital editions is win win a fallacy when it comes to esg investing the advent of esg investments has led some to question whether a bubble might be forming but with 2020 marked as the hottest year on record it is perhaps useful to question the legitimacy of these concerns finance author shaw mabuto partner spear capital related topics esg funds investment sustainability top 5 top 5 ways to manage the board during turbulent times top 5 ways to create a family friendly work culture top 5 tips for a successful joint venture top 5 ways managers can support ethnic minority workers top 5 ways to encourage gender diversity in the workplace top 5 ways ceos can create an ethical company culture top 5 tips for going into business with your spouse top 5 ways to promote a healthy workforce top 5 ways to survive a recession top 5 tips for avoiding the conference vortex top 5 ways to maximise new parents work life balance with technology top 5 ways to build psychological safety in the workplace top 5 ways to prepare your workforce for the ai revolution top 5 ways to tackle innovation stress in the workplace top 5 tips for recruiting millennials over the past few years environmental social and governance esg led investing has grown exponentially in fact the value of esg driven assets almost doubled over four years and more than tripled over eight years to hit 40 5trn in 2020 driving that growth has been the belief among investors that esg investments provide a win win scenario where they can help save the planet while netting positive returns and to a large extent that s held true a 2020 study found that 60 percent of sustainable funds outperformed the market over 10 years despite such results there are some who believe that the win win scenario offered by esg is a fallacy financial times us editor robert armstrong for instance argues that win win arguments promoting both bigger profits and better social returns are illogical just how valid is this counter argument and should it impact the decision making of anyone wanting to take an esg led approach to investing the case against win win according to armstrong the illogic of the win win argument can be explained by the fact that the argument rests on two fallacies the first is that the time horizon which individual investors operate over doesn t match that at which social good and financial interests must converge nor he argues is this convergence within the scope of any corporation s planning horizon the second is that a wicked or anti esg portfolio perfectly well might offer the best available return even as esg portfolios become more de rigueur armstrong suggests an anti esg portfolio might provide better value because the assets in it can be bought more cheaply others have pointed out that there may be an esg bubble forming that s because many esg companies particularly those in the environmental space are loss making and yet their share prices keep rising the problem with the logic behind the first fallacy is that it presumes that the point at which social good and financial interests must converge is some point in the future it s not despite considerable reductions in local and international travel thanks to covid 19 2020 was still the hottest year in history a 2020 report by greenpeace southeast asia and the centre for research on energy and clean air meanwhile found that globally air pollution has a 2 9trn economic cost equating to 3 3 percent of the world s gdp how much more money should be left on the table before social good and financial interests converge the trouble with the second argument is that it ignores the societal pressure and consumer shifts could force companies that are anti esg now to change their policies or even pressure them out of existence of course certain anti esg companies could thrive and outperform in this scenario but as a whole the risk could warrant the discount the arguments for a bubble can be similarly disproven those suggesting that we re in the midst of an esg bubble ignore the fact that esg focused companies are likely to lead the post covid recovery in the wake of the pandemic and the clean skies that accompanied cities locking down people have realised that business cannot carry on as usual as people corporations and countries look to improve their environmental and sustainability credentials they will flock to the companies that allow them to do so the last of these entities is particularly important can it really be a bubble if governments are pushing companies to become more esg compliant because doing so is the best hope for the planet the right companies under the right guidance none of that of course is to say that every esg focused company is guaranteed to succeed even with all the right policies in place a company can still make products that don t resonate with changing consumer wants and needs it s therefore imperative that investors choose funds with experience and a strong record when it comes to backing fundamentally strong esg companies additionally they should steer clear of only relying on esg funds that invest in listed companies private equity funds for example are often capable of identifying companies which have a potentially strong proposition and are more focused on taking a hands on approach to their success without the vagaries of the stock market to deal with they can take a long term approach which benefits both the companies in its portfolio and its investors embracing esg s reality the growth of esg over the past few years therefore isn t a sign of misguided investors taken in by a fallacy nor is it as some have suggested the early signs of a bubble the most investor friendly companies going forward will be the ones that lead the way when it comes to esg and that s not because they re simply giving the investors what they want it s because fundamentally esg principles are what makes a good company by serving the environment looking after the social good and exercising good governance they re setting themselves up for long term success so long as they re producing products that consumers genuinely want sceptics who think that the esg win win scenario is a fallacy would do well to remember that post navigation previous article vertex tax technology why add a tax engine for procurement next article vertex tax technology introducing vertex cloud vat compliance related the telecoms company leaving a positive impact on the environment society and governance the luxury travel brand collaborating with thierry henry the dream job how moldcell drives digital and financial inclusion in moldova sustainable competitiveness how bbk is building a better future for biscay part two sustainable competitiveness how bbk is building a better future for biscay part one pioneering electric mobility from start up to industry giant the foundation of success the perfect blend for building brands esg supply chain due diligence addressing modern slavery and human rights risks in practice we need partnership and innovation to achieve a more sustainable future about us contact advertise profiles industry outlook management finance world view lifestyle videos awards