Climate change has made ESG a force in investing

“LABELLING BASED on incomplete information, public shaming, and shunning wrapped in moral rhetoric,” said Hester Peirce, a straight-talking commissioner at America’s main financial regulator, the Securities and Exchange Commission, in June. She was taking aim at the scoring systems that purport to assess firms’ performance based on environmental, social and governance (ESG) factors. Yet love them or hate them, ESG scores are becoming ever more important in the world of investing and capital markets. At least $3trn of institutional assets now track ESG scores, and the share is rising quickly.In America and Europe some politicians, bosses and investors want to shift away from measuring corporate performance based mainly on shareholder returns. Climate change is another catalyst. Christine Lagarde, the new head of the European Central Bank, thinks the institution should consider using monetary policy and bank supervision to fight climate change—a shift that would involve assessing which firms are dirtier than others. Mark Carney, the governor of the Bank of England, has championed better disclosures by firms on climate change. Chris Hohn, the head of TCI, a London-based hedge fund famous for its hard-headed approach, has outlined plans to vote against the directors of companies that fail to reveal their carbon emissions.
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