Art by OYOW
ESG has become controversial as an investing thesis, with critics—mainly politicians in red states—arguing that only standard financial data, meaning earnings and revenue, should be employed when making investment decisions.
Politics aside, a strong argument exists that investors are well served if they tap an extra source of information to detect any hidden problems within a company in which they are investing that could end up harming their stakes. Using an environmental, social and governance lens can help scrutinize companies for weaknesses that may harm their portfolios.
Pity the poor stockholders in Enron, the ill-fated energy and commodities company, where accounting fraud masked significant financial vulnerabilities. While a short-seller warned that Enron’s accounting was sketchy, many investors ignored the admonishments and bought the company line that its operations were too sophisticated for small minds to comprehend. Its 2001 bankruptcy filing cost investors an estimated $74 billion.
The term ESG was not known then. The concept now is widespread and gaining ground despite the controversy surrounding it. Ashby Monk,…
