Socially Responsible Investing

A Resource Misallocation Disaster in the Making

By Mathieu Gomes, Paul H. Tice

Midjourney

Directing capital flows and manipulating firms’ capital costs through environmental, social and governance (ESG) mandates leads prices to misstate the relative scarcities of things and the relative values that their users put on them. Basing investment decisions on ESG factors creates financial market distortions; restricts the investable universe for asset managers, pension funds, and insurance companies; and is driving capital away from developed European markets. However well intentioned, Europe’s imposition of these policies is likely to be an economic and social failure.

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Mathieu Gomes
is a full professor of finance at Université Jean Moulin Lyon 3, France, and a CharteredFinancial Analyst (CFA) charter-holder. His research interests focus on commodities, investments, andcorporate finance.
Paul H. Tice
is an adjunct professor of finance at New York University’s Stern School of Business, and a seniorfellow and member of the Board of Advisors of the National Center for Energy Analytics. He specializes in theenergy sector and has forty years of experience in the financial industry.