With money flowing out of ESG funds over the last year, the practice of investing in companies based on environmental, social and governance issues may be at a turning point, say University of Virginia School of Law professors Quinn Curtis and Paul G. Mahoney on the latest episode of “Common Law.”

On the UVA Law podcast, hosted by Dean Risa Goluboff and focused on a “Free Exchange” of ideas among faculty for its sixth season, Curtis and Mahoney discuss whether ESG funds accomplish what they set out to do: make the world a better place while providing excellent financial returns to investors.

Information technology companies and other corporations that use less energy or have less environmental impact tend to have better ESG ratings, while fossil fuel and manufacturing companies get lower scores. Since Russia invaded Ukraine, though, energy prices have soared and some ESG-friendly companies have stumbled in the markets.

Considering that ESG goals don’t always align with better returns, and that a recently proposed Securities and Exchange Commission rule requiring disclosure of financial factors connected to climate change has faced blowback, the professors consider whether the practice of identifying and choosing ESG funds will evolve. (The episode taped before the SEC adopted its new climate disclosure rule March 6 in a weaker form than was originally proposed.)

Curtis and Mahoney also discuss whether businesses should focus on climate change, how some large investment firms use ESG to differentiate their products, the difficulty of measuring whether ESG funds work, inconsistent rating systems for ESG and why such funds seldom appear in most retirement plan options.

Mahoney, who served as dean of the Law School prior to Goluboff, is an expert in securities regulation, corporate finance, and law and economics. He is the author of the book “Wasting a Crisis: Why Securities Regulation Fails.”

Curtis, an expert on the regulation of retirement funds and other retail-focused investment funds, has explored ESG extensively in his scholarship. He is the author of “Retirement Guardrails: How Proactive Fiduciaries Can Improve Plan Outcomes,” with co-author Ian Ayres of Yale Law School.

“Common Law” is available on Apple PodcastsStitcherYouTubeSpotify and other popular podcast platforms. The show, which posts new episodes every two weeks during the season, is produced by Emily Richardson-Lorente.

Past seasons have focused on “The Future of Law,” “When Law Changed the World,” “Law and Equity,” and “Co-Counsel” on seasons four and five.

You can follow the show on the website CommonLawPodcast.com or Twitter at @CommonLawUVA.

Founded in 1819, the University of Virginia School of Law is the second-oldest continuously operating law school in the nation. Consistently ranked among the top law schools, Virginia is a world-renowned training ground for distinguished lawyers and public servants, instilling in them a commitment to leadership, integrity and community service.

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