Will ESG cause stagflation?

Ethical investing has been around for decades. But its latest incarnation, signified by the acronym “ESG” (investing with an eye to a company’s approach to environmental and social issues, and corporate governance) only really began to gain traction in around 2018, according to search-engine queries, as measured by Google Trends. ESG is rather more explicit about the idea that there need not be a trade-off between “good” behaviour and attractive investment returns. Indeed, ESG argues that high-quality corporate governance, environmentally friendly practices and good corporate citizenship are material to the performance of financial assets.

Defining ESG is not easy

There is a logic to this and there has even been some discussion of whether it might be possible to calculate an ESG “factor” (ie, a set of characteristics – similar to “growth” or “value” – which tend to lead companies to outperform over the long run). However, these attempts are hindered by a lack of agreement on definitions. Indeed, there is