8 Conclusion

At the heart of ESG investing lies a dichotomy between sustainability and profitability. Many researchers claim that it is possible to obtain both at the same time, popularizing the “oing good and doing well” motto. When we span hundreds of articles, the conclusions are not clear-cut, which is the conclusion of most meta-studies. But at the same time, if SRI is (on average) not costly and may be socially beneficial, then it almost qualifies as ethical free lunch. This is the most salient takeaway from the book. Over the past two decades, there is no strong indisputable evidence that sustainable investing is financially detrimental, which is why investors who care (even remotely) about the long-term future should not hesitate one second to embrace SRI.

At the beginning of the 2020 decade, green stocks have performed relatively well. They may become expensive, which would lower their expected returns. Investors should not be disappointed if realized returns of green indices become less attractive, compared to conventional indices. The green premium (if there is one) will fluctuate.

There are, however, signs that investors are shifting resources toward green firms simply because brown firms are increasingly perceived as bearing risks that are both hard to evaluate and potentially devastating. This is meaningful in the aftermaths of major crises because investors want to attenuate the systemic risks in their portfolios. In the long run, the multiplication of natural disasters is likely to force governments to fiscally penalize polluters. Companies with increased exposure to physical risks (heat waves, rising sea levels) and transition risks (carbon taxes) will see their cost of capital soar. The rise of green activism and lobbying is also a threat for brown corporations. More and more, sustainable firms may be considered as safer bets, rightfully so.

Nevertheless, it is not obvious that the rise of ESG investing has a significant impact globally. First, by leaving brown firms out of the loop, green investors miss an opportunity to bend the policies of the worst-in-class corporations toward increased sustainability. In fact, polluting firms can sometimes be the ones that invest the most in sustainable technologies. Moreover, it is premature to conclude whether individuals or institutions who invest in green firms participate actively in the pursuit of ESG-compatible goals. This topic is a fertile ground for scholars who carry out research in shareholder activism.

Future research will need to identify more precisely which determinants matter most from a financial and social standpoint. Granular characteristics (on emissions, governance and social issues) are increasingly being disclosed by firms, and they open the way for finer analyses. Uniform regulations enforcing strict reporting constraints would benefit all stakeholders by imposing transparency in a discipline that needs it desperately.