Is ESG a Luxury Good?

Abstract

In this Closer Look, we consider whether ESG is a luxury good—a good whose high price tag stimulates demand. During times of economic prosperity, shareholders expressed willingness to sacrifice personal financial benefit to see environmental and social objectives advanced, but in times of adversity, their willingness to suffer personal financial loss in support of ESG has collapsed. We ask:

• Is ESG a luxury good, or a basic necessity?
• Is the current change in investor sentiment permanent, or will it rebound when economic conditions improve?
• What are the implications for boards of directors? Which stakeholder initiatives are “must haves” and which are “nice to haves”?
• What stakeholder investments should be retained through the cycle, and which should be dependent on economic conditions?

Keywords: ESG, shareholders, investors, board of directors, stakeholders