Investors who want to do good while still doing well shouldn’t worry too much about high levels of corporate profit. They should worry about exorbitant executive pay.
Income inequality remains the elephant in the room for asset managers who factor environmental, social and governance criteria into their investment decisions. It is an important one, though. Principles for Responsible Investment, a United Nations-supported network of investors, warns that it can fuel political unrest as well as debt-driven financial instability.
There has been a lot of attention paid to how much of national income goes to profits instead of workers’ pay. Labor’s share of gross domestic product remained close to a postcrisis low in 2019 amid record corporate earnings, according to the latest U.S. data.
But ESG investors are, after all, still investors. Even they would have a hard time foregoing profits to raise workers’ salaries and tackle long-term issues of income inequality. The good news is they may not need to.