• The ESG movement calls for public companies and investors in public companies to identify and voluntarily implement environmental, social, and governance initiatives—ostensibly in the public interest.
• One school of thought supporting ESG is that doing so will make companies more profitable and thereby increase the wealth of their shareholders.
• However, academic research to date has failed to identify a consistent and statistically significant positive relationship between corporate ESG ratings and the stock market performance of companies.
• In fact, research instead suggests that adopting an ESG-intensive model might compromise the efficient production and distribution of goods and services and thereby slow the overall rate of real economic growth. Slower real economic growth means societies will be less able to afford investments to address environmental and other ESG-related priorities.
• The second school of thought is that companies, their senior managers, and their boards have an ethical obligation to implement ESG initiatives that go beyond simply complying with existing laws and regulations, even if it means reduced profitability. However, corporate managers and board members cannot and should not be expected to determine public policy priorities. The latter should be identified by democratic means and not by unelected private sector managers or investors.
• Given that there are indications that investor support for ESG is waning, it is apparent that the time has come for corporate leaders and politicians to acknowledge that it’s time to move on from ESG.

Authors:

Steven Globerman

Senior Fellow and Addington Chair in Measurement, Fraser Institute

Jack Mintz

President’s Fellow, School of Public Policy, University of Calgary

Bryce Tingle

1. Murray Edwards Chair in Business Law, University of Calgary

More from this study

Read the Essay: It’s Time to Move on from ESG

Read the Essay: Putting Economics Back into ESG

Read the News Release

The Fraser Institute is an independent Canadian public policy research and educational organization with offices in Vancouver, Calgary, Toronto, and Montreal and ties to a global network of think-tanks in 87 countries. Its mission is to improve the quality of life
for Canadians, their families and future generations by studying, measuring and broadly communicating the effects of government policies, entrepreneurship and choice on their well-being. To protect the Institute’s independence, it does not accept grants from
governments or contracts for research. Visit www.fraserinstitute.org

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