Is ESG a “Luxury Good”? | The D&O Diary

The authors then go on to observe that to date, “many boards have viewed investment in ESG as economically – or at least socially — beneficial.” However, because there has been little research by researchers that have no preferred outcome, the economic consequences of ESG “have never been rigorously demonstrated.” In the absence of this kind of evidence, and with “demand for ESG in reverse,” boards now must face the question of what changes, if any, to make to their companies’ ESG-related initiatives. In order for boards to make this assessment, “it bears considering,” the authors assert, “how investors view the ESG characteristics of firms in their portfolio.

”The authors then consider the possibility that ESG is a “luxury good” – that is, “an item whose demand increases with price.” Think of brands like Rolls Royce or Tiffany, which can command a premium for their products.  Demand for these kinds of goods changes not with respect to the raising or lowering of the price of the goods, but rather with the economy: “When consumers are feeling flush, they are more likely to purchase a luxury good; when their wealth falls, demand for these specific types of good also falls.”

Source: Is ESG a “Luxury Good”? | The D&O Diary