US financial editor Robert Armstrong is wrong to contend that ESG investing rests on weak conceptual foundations
The upheaval of life as we know it as a result of the Covid-19 pandemic has escalated calls for the application of environmental, social & governance principles across all industries, to build a better world. This has been particularly evident in financial markets, which have seen the wreaking of almost unprecedented havoc across global markets, with the interruption of supply chains and the drying up of demand.
However, there exists increasing debate around the role of ESG investing and stakeholder capitalism in driving optimal returns for shareholders. Just last week we saw two arguments in this publication questioning its value when it comes to driving market returns and real, fundamental change in our world.
This kind of thinking is deeply flawed in that it fails to recognise the economy as a subset of society, which in turn is acutely reliant on the safe functioning of the global biophysical system. Sustainability as a field sits at the intersect of complex system science and normative ethics. The systems science side of it focuses on the interplay between the biophysical, social and economic aspects of our existence.
Armstrong’s point that stakeholder capitalism is founded on weak conceptual ideas is just plain incorrect. This is a field that has grown in its depth of research and understanding over the past 20 years. Prof Colin Mayer of Oxford university, an advocate of stakeholder capitalism, frames it as: “The purpose of business is not to produce profits. The purpose of business is to produce profitable solutions to the problems of people and the planet.
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