The stakeholder-shareholder debate in finance has narrowed down to a false dichotomy between good capitalism and bad capitalism. The former means funding green energy to fight global warming, while the latter means investing in fossil fuels, tobacco, or other “sin stocks.” However, the economic downturn should be a wake-up call to investors regarding the hidden costs of feel-good stocks: lower returns, higher retail prices, and job destruction.
The driving force behind moral investing is a new class of criteria known as Environmental and Social Governance (ESG). This involves evaluating a company’s operations according to a vague set of subjective principles such as limiting carbon footprints and promoting diversity.
In Canada, eight pension funds managing a total of $1.6 trillion have called on corporations to increase ESG disclosures to aid in investment decision-making. The group includes the all-powerful Canada Pension Plan and the Ontario Teachers’ Pension Plan; both have mounting unfunded liabilities that put them in no position to play games with assets.
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