Understanding What ESG Really Means
Environmental, Social, and Governance (ESG) investing has become a common phrase across headlines and portfolios alike. First introduced as a formal framework by the United Nations in 2004, ESG was intended to measure how responsibly companies operate — environmentally, socially, and in corporate governance.
Two decades later, it represents a rapidly expanding segment of global capital. According to the Global Sustainable Investment Alliance, more than $25 trillion of the world’s $130 trillion in managed assets now consider ESG principles in some capacity.
Yet as interest grows, so do misconceptions. Chief among them: that ESG strategies inherently outperform traditional investments. As Moran Wealth Management® Chief Portfolio Strategist Charles Chesebrough, CFA®, explains in the latest episode of Dime After Dime, “It’s a very mixed bag, almost a 50-50 shot at outperforming or underperforming.” In other words, investors motivated by ESG factors should view these strategies as reflections of their ethics and priorities, not as guaranteed pathways to higher returns
Why Investors Are Drawn to ESG
Much of ESG’s modern momentum stems from generational experience. For many Gen X and millennial investors, formative events such as corporate scandals and financial crises left lasting impressions about fairness, corporate responsibility, and the social impact of money. “When you watch your parents’ 401(k) go to nothing, or you see massive pay gaps between executives and employees, that shapes how you view business,” Chesebrough notes
For these investors, ESG represents more than a trend, it’s an attempt to align financial decisions with personal integrity. The rise of digital transparency, data scoring, and public accountability has only strengthened this connection. Today, sophisticated software and third-party agencies can evaluate thousands of companies on ESG criteria, creating the perception of objectivity, though not always accuracy. As Chesebrough cautions, some corporate players have learned how to “game the system” by optimizing for scores rather than substance
Balancing Values and Performance
For investors passionate about sustainability, ethics, or governance, ESG frameworks can offer a sense of purpose. But the data remains clear: consistent outperformance has not been demonstrated. That’s why Moran Wealth Management® encourages investors to separate their values-based goals from their performance-driven goals and to plan for both.
A thoughtful approach might include allocating a portion of one’s portfolio to ESG-aligned funds or stocks while maintaining a broader strategy designed to meet long-term growth and income needs. As Chesebrough explains, “You may want to have a bucket for values, but you also need one for growth. Inflation, risk tolerance, and time horizon all matter, so blending the two can make sense for many investors”
Alternative Ways to Express Your Values
Investors who want to support positive change without relying solely on ESG-labeled products can do so through charitable planning and estate design. Qualified charitable distributions (QCDs) from IRAs, donor-advised funds, and charitable remainder trusts all allow investors to direct assets toward the causes they value most, often with tax benefits.
“You can achieve many of your ESG goals through philanthropy,” Chesebrough says. “That may actually have a greater impact than simply owning companies with higher ESG scores”
This approach allows investors to focus their investment portfolios on risk-adjusted performance while still ensuring their wealth ultimately supports organizations and initiatives aligned with their values.
The Emotional Side of Investing
The discussion also underscores a broader truth: emotion often drives investment decisions. Whether motivated by environmental causes, political affiliations, or personal beliefs, investors may be tempted to let feelings dictate financial choices. But as Chesebrough reminds listeners, the data shows that markets have historically performed best during periods of political balance, not under any single ideology
Staying disciplined, diversified, and goal-focused remains essential, regardless of market sentiment or headlines.
Key Takeaway
It’s possible, and often rewarding, to align your portfolio with your principles. But clarity of purpose matters. As Chesebrough concludes, “Be aware that ESG really hasn’t proven to be an outperformer. If you’re doing it, it’s because you have the passion and belief in those values.”
For investors seeking both purpose and performance, a comprehensive wealth plan can integrate ethical priorities alongside financial realities, allowing your money to reflect not just who you are, but what you care about most.
Sources:
- Global Sustainable Investment Alliance (2024): Global Sustainable Investment Review — Data on global ESG assets and growth trends.
- Morningstar (2023): ESG Funds Underperformed in 2022 but Drew Record Net Inflows — Analysis of historical ESG performance volatility.
- Harvard Business Review (2022): The ESG Mirage: Why the Ratings Don’t Always Reflect Reality — Examination of ESG scoring inconsistencies and “greenwashing” challenges.
Environmental, Social, and Governance (ESG) factors are only one of many considerations in an investment strategy. There is no guarantee that incorporating ESG criteria will result in improved performance or align with the views of any particular investor. ESG ratings and data may vary by provider and are subject to change over time.