What's going on?

Last week, Goldman Sachs hosted a conference for companies and investors to discuss how their environmental, social, and governance (ESG) responsibilities would impact them � and how to make sure they don�t lose money if the apocalypse arrives.

What does this mean?

Climate change and its implications for the energy industry were front and center of the discussion, especially in light of a recent report estimating the crisis would cost the world�s biggest companies a combined $1 trillion. Some companies see renewable energy as the long-term solution, but they’re still not sure how to store it. In the meantime, natural gas � which is less damaging than coal � appears to be their preferred alternative.


Investors weren�t necessarily having these conversations altruistically: research has shown that the top ESG funds are generating better returns than their less socially responsible peers.

Why should I care?

For you personally: Governance begins at home.

A recent report by the Wall Street Journal found that eight of the top ten ESG funds are invested in oil and gas companies � which may be at odds with what you�d expect from an �environmental� fund (tweet this). There�s not much oversight of ESG funds, partly because there�s no single definition of what actually qualifies as ESG. And because these funds typically aim to track the broader stock market, they still have to invest broadly � including in sectors that aren�t socially responsible.

For markets: Investors have been getting in on the action.

“Institutional” investors might be more worried about �ESG crowding�. That�s where companies that have high ESG ratings � and are therefore bought up by ESG-focused funds � see their valuations rise thanks to increased demand. According to Goldman Sachs, such companies are 40% more expensive than the stock market as a whole. That might dissuade would-be investors, who may instead look for cheaper opportunities elsewhere.