Yale study: ESG investing isn’t doing much for the environment

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🗞️ Driving the news: ESG (Environmental, Social, and Governance) investing is facing scrutiny as a new study reveals that it may not effectively reduce carbon emissions
• A study by Yale University and Boston College researchers investigated the environmental impact of over 3,000 large companies and found that ESG investing, ironically, may be counterproductive

🔭 The context: ESG investing involves transferring capital to "green" companies with lower carbon emissions relative to revenue
• It is seen as a way to incentivize “brown” companies, usually heavy carbon emitters like energy and building materials producers, to reduce their emissions

🌎 Why does it matter for the planet: According to the study, while green companies benefit from a lower cost of capital through ESG investing, it does not translate into reduced emissions 
• Instead, the “brown” companies, when deprived of capital, tend to focus on short-term survival and may even increase their emissions to avoid bankruptcy
• Furthermore, larger companies might sell off older assets to appear greener, but those assets often become even less environmentally friendly under new ownership

⏭️ What’s next: The study raises questions about the effectiveness of ESG investing in combating climate change 
• It points to the necessity of more strategic and comprehensive approaches, such as government intervention through policies like carbon taxes, and investments from a range of players including 'dirty' industries, energy producers, and green startups, to foster innovation and genuinely reduce environmental impacts

💬 One quote: “When you punish brown firms, they become more short-termist” (Prof. Kelly Shue, Yale University)

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