The ESG Initiative at the Wharton School
As Some Investors Walk Away From ESG, What Comes Next?
Outlet: Forbes Online
After the first calendar year of outflows from US sustainable funds in 2023, the time has come for investors to consider rational sustainability as a middle ground between abandoning and continuing with ESG investing.
Rational sustainability involves a careful approach to analysis and logic: it focuses on the dimensions of sustainability that are linked to financial performance and probes the complexities of measuring dimensions of sustainability that have no or negative correlation with returns. For example, the highest quality academic evidence—including the work of Professor Katherine Klein of Wharton and Professor Jesse Fried of Harvard—finds zero or negative link between diversity and company performance, but a holistic measure that incorporates equity and inclusion is positively linked to performance. Rational sustainability avoids herd mentality, allowing investors to sell overpriced sustainable companies and buy underpriced sustainable companies that do not tick ESG boxes.