One of the biggest investment trends over the last several years has been symbolized by a ubiquitous acronym: ESG, or environmental, social and governance.
The theory behind ESG comes in two parts: first, that investors have a responsibility to use their money to push companies to be more ethical and accountable for their actions; second, that companies with good governance and responsible practices can provide better returns over time despite potentially higher costs — as they are better adapted for a changing world where consumers, regulators and markets stand ready to punish bad actors.
ESG has proved both increasingly popular — with net inflows of $70 billion last year, a 35% increase over a record set in 2020, according to Morningstar — and correspondingly controversial. Elon Musk called it "the devil incarnate." Peter Thiel called it a "hate factory."
