ESG investments are necessary…
Reliable ESG criteria are becoming increasingly important for companies and investors due to regulatory requirements. These ESG activities are important and moving in the right direction. However, ESG investments carry new risks that are not sufficiently appreciated today.
ESG criteria form an important foundation for sustainable investments. Reputable management consultancies do an excellent job of integrating ESG criteria into investment decisions. However, most companies stop at this point. Hardly anyone questions future risks arising from environmental, social and governance factors.
Viewing investments only through the lens of immediate or short-term ESG criteria jeopardizes the medium- to long-term stability of investments. In the long term, this could lead to the sustainability that is actually intended falling victim to the path dependencies that are established today.
…but they come with new risks.
One example: regenerative agriculture is considered sustainable under ESG criteria. However, the industrialization of alternative proteins can lead to stranded assets in the beef and dairy sectors if non-animal protein alternatives are produced at lower costs than animal protein. A number of new long-term risks need to be considered here.
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