As we continue to span the globe to bring the constant variety of ESG topics, I’m reminded of my favorite part of watching live sports: being part of a crowd. The energy inside the stadium is never more electric than when something great happens for your team. At times like those—a walk-off home run or a last-second field goal—announcers often fall back on the tried-and-true statement: “And the crowd goes wild!”
It’s a little less dramatic than sports competition, but ESG—the acronym for “environmental, social, and governance” that captures a host of often undefined concepts—is having a bit of a “and the crowd goes wild” moment. ESG funds received about $51 billion from investors in 2020, more than double the amount invested in 2019 and representing about a quarter of the money flowing into all U.S. funds. Whether this is a short-term trend or a lasting shift in investment behavior remains to be seen, but there’s no denying the current interest in ESG.
Those who want public companies to be required to disclose ESG information point to this investment behavior as a sign that the “crowd” agrees. During his confirmation hearing, SEC Chairman Gary Gensler cited the “tens of trillions of dollars in assets” as proof that investors “really want to see” climate risk disclosure, which is part of the “E” in “ESG.” SEC Commissioners Lee and Crenshaw also have both pointed to investor demand as supporting SEC efforts to mandate ESG-related disclosure. But do we understand this “investor demand?”
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