After several years of dramatic growth, ESG investing seems to have entered a period of retrenchment.  While it is impossible to predict the future trajectory of ESG, the movement has revealed important structural features of our financial system and the social forces that act on it. As the ESG terrain shifts, it is important to have a clear understanding of these forces. In a new article, we argue that the intense c-suite focus on ESG has been a product of social demand from investors, employees, and customers transmitted to CEOs through various interacting channels.

Within this framework, CEOs bear significant, non-diversifiable personal risks when their firms experience ESG problems.  CEOs face the possibility of losing their positions and seeing their career trajectories diminished. Consequently, these risk-averse CEOs may embrace ESG, not only in response to shareholder pressure, but also defensively as a means of self-protection, and such strategies may not be optimal in either a pecuniary or social welfare sense. This CEO-centric ESG agency dilemma has largely been overlooked by both critics and proponents of ESG.

Michal Barzuza, Quinn Curtis & David H. Webber, The Millennial Corporation: Strong Stakeholders, Weak Managers, CLS Blue Sky Blog (2024).