Freakonomics Radio 546. Are E.S.G. Investors Actually Helping the Environment?
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Jun 15, 2023 
Kelly Shue, a finance professor at Yale, critiques ESG investing, arguing it primarily benefits already green firms while leaving polluters without support for transformation. Chris James, founder of Engine No. 1, shares insights on effectively engaging firms like ExxonMobil to foster sustainability. Tony Will from CF Industries discusses his company's decarbonization efforts, highlighting government support in achieving greener practices. Together, they unravel the complexities of ESG investing and the need for targeted strategies to drive real environmental change.
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ESG Investing Flaw
- ESG investing’s supposed mechanism is to make the world greener by allocating resources to improve the world.
- However, Kelly Shue found a flaw in this logic, arguing it violates basic corporate finance concepts.
Norway's Sovereign Wealth Fund
- Norway's sovereign wealth fund, fueled by oil and gas revenues, uses ESG principles to guide investments.
- The fund divests from companies involved in coal, tobacco, certain weapons, and unsustainable practices like deforestation.
Green vs. Brown Firms
- Shue's research questions the effectiveness of raising the cost of capital for brown firms and their incentives to become green.
- It categorizes firms by greenhouse gas emissions, with brown firms being the top 20% polluters and green firms the bottom 20%.