ESG investing

ESG investing considers environmental factors (such as emissions and resource use), social factors (labor practices, community impact, diversity) and governance factors (board structure, executive pay, ethics) when selecting investments or engaging with companies. The term was popularized in a 2004 United Nations report, and funds that use ESG criteria have grown into the trillions of dollars of assets.

Supporters, including many asset managers, argue that ESG factors affect long-term risk and returns and that investors should account for them, while others pursue it for values-based reasons. Critics offer different objections: some say that ESG labels are vague and sometimes sacrifice returns for political goals; some conservatives argue that big asset managers use their influence over companies to advance a progressive agenda on climate and diversity, equity and inclusion, the "stakeholder capitalism" they dispute; and some on the left say that it amounts to greenwashing and does too little.

Republican-led states have passed laws to restrict ESG in public pensions, require boycotts lists, such as of energy companies, or bar "social credit" practices by banks, while some Democratic states have promoted it. Federal rules have swung: the Labor Department's regulation on ESG in retirement plans was changed between administrations. A related corporate effort is the pledge to reach net zero emissions. Academic evidence on the effect on returns is mixed.