An increasingly important topic in business and investing is a company’s environmental, social and governance (ESG) score. An example of an ESG activity is zero net carbon emissions by using renewable energy – for instance, Apple (AAPL) has a target of being “carbon neutral” by 2030 by using renewable energy sources like wind and solar.
The general methodology of how an ESG score is calculated is given in the Thomson Reuters article below:
Using a similar methodology, the Dow Jones list of top ESG scores is shown in the list below:
https://www.investors.com/news/esg-companies-list-top-100-esg-stocks-2022/Links to an external site.
In what some call a “green rush”, many investment firms have created ESG funds to give investors the choice to invest in stocks with high ESG scores. But a concern is so-called “greenwashing”, where firms pretend to be more ESG than they truly are, because consumers are willing to pay more for products that they believe are “green”:
https://www.nerdwallet.com/article/investing/greenwashingLinks to an external site.
But not everyone supports the concept of ESG investing, arguing that ESG is politics rather than good investing. For example, some states in the US, such as Florida and Texas and West Virginia, have banned ESG investing in their state pension funds:
https://www.cnbc.com/2022/09/11/esg-on-the-edge-controversy-weighs-on-sustainable-etfs.htmlLinks to an external site.
https://nypost.com/2022/08/24/florida-gov-ron-desantis-bans-esg-agenda-at-state-pensions/Links to an external site.
A response in support of ESG is given below by the CEO of the BlackRock investment fund, the largest investment firm for ESG funds:
https://nypost.com/2022/01/18/larry-fink-says-stakeholder-capitalism-isnt-woke-just-good-business/Links to an external site.
A survey of university students at the University of Houston, focusing on companies in the energy sector, shows that concern about ESG varies among students – some students think that ESG is important, some not.
https://uh.edu/hobby/esgworkforce/Links to an external site.
- The vast majority of UH students (96%) believe that climate change is happening, and a majority of respondents (57%) said that climate change is caused by both human and natural changes in the environment.
- The survey also showed that ESG stewardship is a factor for some students when considering job offers in the energy industry (i.e., oil and gas sector).
Question: Do you think that companies have a responsibility to proactively pursue ESG goals, or should companies focus on making money for shareholders?