Market short-termism and its perceived impact on ESG investments

Episode notes

In this episode of the Better Finance podcast, Myles Corson welcomes Brian Tomlinson , ESG Reporting Managing Director at Ernst & Young LLP and Ariel Babcock , Head of Investment Stewardship at Fidelity Investments and formerly Head of Research for FCLT Global , a not-for-profit organization that develops research and tools to drive long-term value creation. FCLT's research of short- and long-term business strategies has found that the pressure for quick projects and fast payoffs may trigger poor outcomes and investment value erosion. In fact, short-termism is experiencing some market pushback due to the constraints it places on decision-making relative to longer-term investments. It seems clear that short-termism does constrain companies' appetite for investing in environmental, social and governance (ESG), primarily due to ESG's inherent medium- to long-term (often times decades long) payoff. ESG investments may be minimized or cut entirely to hit short-term earnings goals, possibly undermining shareholder rights as a result. Particularly in turbulent economic environments where companies tend to hoard capital, long-term goals may be weakened or overthrown.