Capitalism, Heal Thyself

Author(s)

Alan Palmiter
William T. Wilson, III, Presidential Chair for Business Law, Wake Forest University

Posted

Time to read

2 Minutes

OBLB categories

Corporate Governance

OBLB types

Research

OBLB keywords

Capitalism
ESG

A paradigm shift is underway: The corporation—much reviled as a cost-externalizing, short-termist, inward-focused, politically manipulative machine—is undergoing a fundamental change. This is good news. Corporations are beginning to confront the harm they’ve created. Capitalism is beginning to save itself from itself. And, looking at the data, it seems exponentially.
 
Rise of ESG Investing
 
There are three powerful factors at work. First, most large investment funds are either incorporating ESG into their investment decisions or tracking stock market indices. Either way, there is the growing realization that bad companies or bad investments can hurt the entire portfolio.
 
Big investors (which all hold both managed portfolios and indexed portfolios) are realizing that everything is connected. They’re either shedding the bad companies from their managed portfolios or attempting to discipline them using the enormous voting power they hold in both types of portfolios.
 

Here is the growth in ‘managed portfolios’ that have embraced ESG by incorporating it into their investment models—as of 2020:

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