This is a necropost but might as well refresh this and see where it has and hasn't aged well rather than start a new topic.
First off, I think most of the posts miss the point about ESG investing in the individual sense. It's not so much about the impacts it has on the companies on question, it's about the investor. All of us have things that could or do keep us awake at night, For some people it's morals and ethical behavior and the desire to have their investments reflect their views, whatever those may be. The investments of one person are not going to effect the behavior of a company (unless, of course, your name is Charlie Munger). But my investments do have a very direct on me. It's not all about maximizing returns, either. Being able to sleep at night matters.
The logic around this idea that because an investor or group or investors can't affect a company because they're not investing at the IPO stage is particularly tortured. What's being argued is that companies don't care about their stock price because, well, the company doesn't get any more revenue from investors on the secondary market. That's silly. A company's management that decides that it doesn't care about it's stock price is not long for this world. They'll be replaced through an acquisition or proxy fight. And if they didn't already get the hint, the reality of executive compensation is that most C-suite executives see a large part of their compensation tied directly or indirectly to the price of the stock.
As for the impact of ESG investment, I don't believe that it's causing a huge impact in the US. Yet. We are seeing an impact overseas, particularly in Europe. The writing is on the wall: companies what act in accordance with ESG principles will benefit, those who don't, won't. Obviously there is some state policy implications coming into play overseas, but the two factors seem to magnify each other.
There is also some tortured logic in the idea that since all companies engage in some less than ideal behavior that we should scrap the idea of ESG investing. Or since there are so few companies that consistently stick to those principles, there aren't enough to put together a diversified portfolio. So we should let the unattainable perfect be the enemy of the good. This is also silly. None of us are perfect. That doesn't excuse us from trying to do better. Good is better than abysmal. There are plenty of companies out there who try to do good. There are plenty of lists out there rating companies on their behavior.
Finally, there has been the argument that ESG funds can't be all things to all people. This is correct. But a more recent innovation for investors has been direct or boutique indexing; building your own index given that trades on most big brokerages today are free. You can do some relatively fast screening using a list of ESG friendly companies, decide which ones meet you own idiosyncratic values, and buy a fairly big portfolio of stocks. Plus since you are a direct owner of the stock, you can introduce shareholder resolutions and vote your own shares. Which you can't do when you own an index.
