ESG-Based Sustainable Investment: Will Myth Turn Into Reality?

This blog examines the ESG-based sustainable investment movement through a sociological and historical lens, based on an academic article published in the journal Regulation & Governance.

Based on a four-year global study including 100 in-depth interviews with investment managers, analysts, activists, and corporate executives, we characterize ESG as a cross-sectoral movement that has gained prominence since 2015, especially following the Paris Agreement.

We argue that ESG investing as a mechanism for global governance represents a myth—a set of unrealistic beliefs that profit-oriented investment can significantly change corporate behavior. This myth rests on three flawed assumptions: that environmental and social risks create financial risk; that ESG risks can be accurately quantified; and that corporations will meaningfully respond to shareholder ESG policies. Despite these limitations, the ESG movement has achieved substantial institutional traction, normalizing sustainability reporting and creating normative pressure within financial circles.

The paper concludes that state intervention is essential for the ESG myth to become reality. Without regulatory mechanisms such as carbon taxation, green investment incentives, and expanded fiduciary duties for investment firms, the transformative potential of ESG investing will remain largely unrealized.

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*Rami Kaplan, Tel Aviv University, Tel Aviv, Israel

**David L. Levy, University of Massachusetts, Boston, Massachusetts, USA

Kaplan, R., & Levy, D. L. (2025). The rise of investor-driven climate governance: From myth to institution? Regulation & Governance. https://doi.org/10.1111/rego.70000