ESG integration and its derivative logic of ethics: exposing the limits of sustainability capitalism

The majority of assets in sustainable investment funds are focused on the integration of environmental, social and governance (ESG) issues into investment decisions. Massive growth in ESG integration, which is vaguely defined, is driving a range of conflicts within financial institutions and beyond. The core premise of sustainable investment in the form of ESG integration is that there need be no conflict between profits and principles. This article illustrates how the sustainable investment universe has grown on the basis of the ambiguity between improving risk-adjusted returns through savvy management of financially material ESG risks on one hand and the prospect of contributing to sustainable development through financial markets on the other. To the extent that ESG integration is presented as sustainable investment, the ethical questions that necessarily accompany matters of sustainability are determined according to a derivative logic. Based on interviews with ESG practitioners, as well as a critical analysis of grey literature and recent regulatory developments, the article demonstrates that this derivative logic of ethics is historically and spatially contingent, and that its fragility and internal contradictions are increasingly revealing the limits of ESG integrated investing as a vehicle for social and ecological sustainability.