Thanks for the talk and the report. I think this it’s a very interesting topic and an important one to work on, given how many socially-minded people seem to care about impact investing.
I have a few more questions in addition to the one about perfectly elastic demand curves:
1. You note that if public markets are efficient then it will take nearly the entire population of investors to divest for the divestment movement to impact stock prices. This seems to make sense: it only takes a small group of socially-neutral investors to drastically increase their investments in the bad company in response to divestment from others. However, if we consider a movement to increase investment in a socially-good company, it seems like this idea doesn’t apply. Let’s say that the good company makes up .001% of the total stock market. It seems like if .001% of investors are willing to accept lower returns for investing in that company, then they should be able fund the company all on their own. In equilibrium no socially-neutral investors will hold that company’s stock, and the stock would yield lower returns than socially-neutral stocks. So perhaps movements which promote investment in good companies are more likely to succeed than divestment movements are.
2. From your research it looks like the current ESG ratings are very low-quality. Given how big of a market impact investing is, do you think that there would be value in trying to improve those ratings?
Thanks for the talk and the report. I think this it’s a very interesting topic and an important one to work on, given how many socially-minded people seem to care about impact investing.
I have a few more questions in addition to the one about perfectly elastic demand curves:
1. You note that if public markets are efficient then it will take nearly the entire population of investors to divest for the divestment movement to impact stock prices. This seems to make sense: it only takes a small group of socially-neutral investors to drastically increase their investments in the bad company in response to divestment from others. However, if we consider a movement to increase investment in a socially-good company, it seems like this idea doesn’t apply. Let’s say that the good company makes up .001% of the total stock market. It seems like if .001% of investors are willing to accept lower returns for investing in that company, then they should be able fund the company all on their own. In equilibrium no socially-neutral investors will hold that company’s stock, and the stock would yield lower returns than socially-neutral stocks. So perhaps movements which promote investment in good companies are more likely to succeed than divestment movements are.
2. From your research it looks like the current ESG ratings are very low-quality. Given how big of a market impact investing is, do you think that there would be value in trying to improve those ratings?