The stakeholder-shareholder debate in finance has narrowed down to a false dichotomy between good capitalism and bad capitalism.
Good capitalism means funding green energy to fight global warming, while bad capitalism 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.