AQR's Lasse Pedersen calls for honesty about ESG costs and benefits

Insisting on only positive effects from ESG investing is not helpful to the case, argues economist from quantitative asset manager AQR.

Lasse Pedersen, Principal at AQR. Photo: Philip Davali/Ritzau Scanpix

Proponents of ESG investing who insist it can only be a force for good for the world and portfolios are not telling the truth and hurt rather than help their case, according to Lasse Heje Pedersen, Financial Economist and Principal at quantitative asset manager AQR.

Reporting from an AQR conference in London, investors' news site quoted Pedersen's response to a question from a delegate:

"Insisting on something that is beyond what makes economic sense and what empirical data supports actually hurts your case, because it’s not true. I think people know in their hearts that ESG is not always good for returns."

According to Pedersen, who is also a finance professor at Copenhagen Business School and at NYU Stern, ESG constraints could reduce the Sharpe ratio – a measure of risk-adjusted performance – when the investor had another objective, but some ESG information could be good for returns.

"I think being honest about the costs and benefits is the way to win the debate and promote ESG investing,” Pedersen said.

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