The political backlash against sustainable investing has been hard to miss. Yet sustainable investing remains popular, and institutional investors are widely using environmental, social and governance (ESG) data because they see it as financially relevant.

Do the critiques make sense? In a recent study, PitchBook analyst Anikka Villegas summarised them and determined which ones, in her opinion, were well-founded and which were misinformed. You can read the entire report here.

Villegas, who specialises in fund strategies and sustainable investing, wrote her report based on PitchBook’s annual Sustainable Investment Survey. PitchBook, a Morningstar company, provides data on venture capital and private equity.

PitchBook received more than 500 completed responses. Many were supportive of ESG and impact investing, and about 50 contained “markedly anti-sustainable-investing responses,” Villegas wrote.

She boiled them down into five common criticisms. Her aim was “to bring … nuance back into discussions about ESG.”

5 common criticisms about ESG


Villegas notes five key criticisms of ESG:

  1. ESG is subjective
  2. ESG requires sacrificing returns
  3. ESG is redundant
  4. ESG distracts from the most important issues
  5. ESG is virtue-signaling


Here’s what Villegas found.

1. Well-founded: ESG is subjective, and ESG performance is difficult to substantiate.

ESG investing is subjective. For example, one investment manager might invest only in carbon-neutral businesses; another might own oil and gas companies that are making ESG improvements.

An investor expecting one approach, and getting something different, might be disappointed.

ESG performance is also difficult to compare because of a “burdensome” data collection process, and because the data vary so wildly, Villegas says.

There’s hope these will ease as the world moves to converge to common measurement systems, aided by tech solutions.

2. Misinformed: ESG requires sacrificing returns and constitutes a breach of fiduciary duty.

In fact, ESG doesn’t require investors to sacrifice returns for the sake of creating positive social or environmental outcomes.

Many investors think ESG helps returns by limiting downside risk. Confusion may have arisen because people think ESG and impact investing are the same thing, even if they’re two different aspects of sustainable investing.

Impact investing tries to produce positive, measurable social and environmental impact, and in the past, some impact investors accepted below-market returns to achieve those goals.

Some studies show that ESG strategies improve returns. There is also some consensus that awareness, consideration, and mitigation of material ESG risks is compatible with fiduciary duty.

“It is worth noting that, in many cases, the logic of ESG does seem to hold based on cost-benefit analysis,” Villegas writes.

What about claims that ESG promotes so-called leftist ideology?

“ESG risks themselves are not inherently political,” Villegas writes. Consider data privacy and security risks, which are key ESG risks.

“It would be difficult to plot [these] on the political spectrum,” she writes.

And while diversity and inclusion are occasionally controversial, “a series of heavily publicised discrimination and harassment lawsuits would be not only expensive but also bad for business.”

3. Misinformed: ESG is redundant because it is already part of best practice.

Many aspects of ESG seem like common sense, such as following the law, treating your employees fairly, and so on. But ESG is actually a sophisticated framework to analyse risks that are related to these ideals, and is “flexible enough to identify and assess new risks.”

For example, as artificial intelligence and machine learning become more important, companies face new risks around the ethics of these technologies.

Ideally, businesses adhere to best practices without being asked, but not all management teams do so. So ESG performance assessments are necessary to ensure awareness and management of these risks.

4. Well-founded: ESG distracts from the highest-priority issues and areas of potential impact.

Even though ESG and impact investing are different components of sustainable investing, they are often discussed together and confused for each other.

ESG is predominantly concerned with how ESG factors influence company performance.

As ESG and impact have become conflated, impact investing has grown politicised and ESG has detracted attention from impact.

Investors seeking socially and environmentally impactful investments have turned to ESG, even though impact investing particularly aims to produce benefits to society.

“The conflation of ESG and impact has proved harmful to both categories of sustainable investing, making it important to use clear and precise language when discussing these topics,” Villegas writes.

5. Misinformed: ESG is mostly virtue signaling and rarely involves follow-through on the actions stated or implied by ESG practitioners.

When virtue signaling involves follow-through on the stated or implied actions, it isn’t necessarily harmful, says Villegas.

Importantly, regulators are working to ensure that sustainability-related claims of financial products are substantiated.

The verdict

In an interview, Villegas says she wrote the report because of client demand, and a desire to sort through the politicisation and polarisation that “have increasingly characterised the ESG space.”

But ultimately, she said, “ESG risks aren’t political.”

She described ESG as an “imperfect” but “valuable tool that can be used to improve company and portfolio performance, while simultaneously creating positive externalities for society.”

By cutting through the misinformation, “we can redirect the conversation to where attention needs to be,” such as perfecting ESG performance data.