Globerman: Government-mandated ESG disclosures—the costs likely outweigh the benefits | National Newswatch
Despite the growing momentum of the ESG movement worldwide including in the United States, Canada remains one of the only western countries that does not require public companies to disclose theirIn its latest budget, the Trudeau government outlined plans to require federally-regulated financial institutions including Canada’s big five banks toon financial risks related to environmental practises beginning in 2024.
Obviously, if governments and regulators impose costly ESG reporting mandates on public companies, there should be compelling offsetting economic benefits to justify such mandates. ESG advocates argue that mandated disclosures will help provide valuable information to investors and lenders about the future prospects of public companies.
But if this argument has merit, there should exist consistent evidence that companies and investment portfolios with the ESG stamp of approval enjoy better risk-adjusted financial returns than companies and portfolios with lower ESG rankings.
What should one make of this evidence? Perhaps current ESG reporting, which varies by jurisdiction, is not sufficiently material to corporate financial performance to alter investment strategies. Or more plausibly, perhaps capital markets in Canada and beyond already efficiently use ESG-related information currently provided voluntarily by companies, and hence ESG-themed investing earns neither above nor below average returns.
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