Factoring In

January 9, 2023

As a partner in a consulting firm that specializes in analyzing E.S.G.—environmental, social, and governance factors—for investors, I read Sheelah Kolhatkar’s profile of Vivek Ramaswamy with particular interest (“Anti-Woke, Inc.,” December 19th). The widespread use of the term “E.S.G. investing” is, in my mind, misleading. At its core, E.S.G. is simply data. More specifically, it is data on a company’s material commitments to things like climate policy. E.S.G. disclosures by companies help address the shortcomings of traditional quantitative measures of corporate performance (i.e., fundamental financial and accounting metrics) by including additional metrics on nonfinancial data to tell a more complete story.

Increasing numbers of investors have started integrating E.S.G. data into the screening process involved in assessing possible investments. This is part of a larger shift in the business world which seeks to find a balance between stakeholder capitalism and the foundational principles of free-market capitalism. The recent enthusiasm for stakeholder capitalism is not, as Ramaswamy suggests, the “woke” death knell of American corporations—it’s the pursuit of a multidimensional and financially sustainable approach to business. Defining, assessing, measuring, and reporting on relevant E.S.G. data helps investors gain a better understanding of a company’s long-term business strategy—and long-term profitability—in a period of considerable societal upheaval.

Anuj A. Shah
Cambridge, Mass.