The debate around ESG divestment versus engagement is increasingly attracting academic research. A study earlier this year showed that funding costs for companies that pollute hardly change when they’re divested, indicating that portfolio allocation ultimately does little to correct unethical behavior in the corporate world.
Authors Jonathan Berk (Stanford Graduate School of Business) and Jules Van Binsbergen (Wharton School) wrote that “given the current levels of socially conscious capital, a more effective strategy to put that capital to use is to follow a policy of engagement.”
Other studies suggest that both strategies can go hand in hand. Divestment as well as thematic and integrated strategies “have potential to help in their own way,” according to research by Jonathan Harris, director of Total Portfolio Project and an associate researcher at EDHEC-Risk.
Tangen says engagement works most of the time. “There are very few companies that don’t respond,” he said. And those that resist change face a bleak future, he said.
“You’re not going to get any financing because the banks are under increasing pressure to be very careful; you’re not going to get any insurance, because insurance companies are under pressure as well,” Tangen said. “Nobody’s actually going to work for you because for young people, it’s really, really important that their values are aligned with your values.”
And then there’s the impact of social media, which has the power to sway customer behavior, he said. “You’re not going to get any clients...if you are not sustainable.”
This article was provided by Bloomberg News.