This important article by Leslie Norton gives 10 reasons that ESG is a permanent part of assessing investment risk and return, but the most significant is the first.

Risk is a key element of investing, and for fiduciaries, assessing it has become critical. Augmenting traditional investment analysis with ESG information provides a more complete information set. It gets at issues that are of clear material concern to companies and investors today, including climate, pollution, treatment of workers, respect for customers, supply chain oversight, and brand and reputation.

Make no mistake: These risks matter. Consider how two apparel companies with similar supply chains address the risk of a cotton crop dying from climate-induced drought. Would you invest in the company that ignores it or the one that recognizes the risk and finds a backup supply chain?

Those who manage money for investors—from the biggest pools to the smallest individual accounts—believe it’s their duty to account for such risk. Since 2005, when the law firm Freshfields Bruckhaus Deringer created a legal framework for incorporating ESG considerations into institutional investment, investors have regarded ESG as consistent with their fiduciary duty.

“Virtually all asset managers use ESG information,” says Jon Hale, a director on Morningstar’s sustainability research team.

Indeed, a Russell Investments survey of asset managers last year found that 82% of U.S.-based asset managers systematically incorporate ESG information in their investment process. The percentage approaches 100% in the United Kingdom and Europe.

“For investment managers like me, who oversees New York City’s pension funds, understanding those exposures is essential to mitigating risk across our portfolio to secure strong returns for the city’s public-sector workers,” wrote New York City comptroller Brad Lander in an essay for The New York Times. Indeed, U.S. pension funds are already voting heavily in favor of ESG resolutions, according to Morningstar research on the 2021 proxy season.

10 Reasons Why ESG Won’t Be Stopped | Morningstar