What is the role of ESG investors?

Or perhaps the question should be “what isn’t the role for ESG investors?” Here’s some insightful commentary from Nawar Alsaadi:

I’ve come across several articles criticizing the role of ESG investors and actors in addressing key environmental and social themes. Many of these critics allude to the false idea that governments are abdicating their responsibility to address critical societal and environmental challenges, and are instead outsourcing this responsibility to unelected asset owners and managers. I couldn’t disagree more with this mischaracterization of the ESG industry.

ESG investors operate within the framework of existing rules and regulations, and are not operating in-lieu of such regulation. ESG participants can help develop and set standards, but these standards are voluntary until adopted by regulatory bodies. Governments, regulators and ESG investors bring complimentary skills to deeply complex sustainability challenges. The private ESG ecosystem has the capacity to introduce effective technological, operational and capital markets solutions to key global sustainability challenges, while governments and regulatory agencies bring legitimacy, legal authority and intergovernmental policy making capacity to enforce, guide and inform sustainability solutions. This is not to mention the key role of NGOs, and other civil society organizations in squaring this circle.

The idea that ESG investors are poised to decide what’s wrong and right is preposterous. ESG investors have no moral authority, but they do have the capacity to translate societal moral priorities into economic, technological and corporate strategy outcomes. The ESG industry is not perfect, but its arrival to the scene should be encouraged and welcomed. Capitalism with ESG embedded in it is more humane, just, transparent, responsible and accountable. A world that has ESG aligned capital within it is a far a better world than one that doesn’t have ESG capital alignment, of that I couldn’t be more certain.