If corporate leaders dress up ideological expenditures as profitable investments, without vetting them against projected cash flows and opportunity costs, they are not merely misallocating capital but misleading stakeholders and courting legal liability.
The fundamental obligation of a corporate fiduciary is unambiguous: to make business decisions on a fully informed basis in order to maximize shareholder value. While this duty has long been the bedrock of corporate governance, the rapid expansion of environmental, social, and governance (ESG) investing—growing to more than $16 trillion in U.S. assets by 2020—has introduced a dangerous ambiguity into boardrooms. One can now read 50-page sustainability reports filled with platitudes regarding the value of often tens of billions of dollars being invested without once seeing a reference to Net Present Value (NPV) or Return on Investment (ROI). However, as political winds shift and scrutiny intensifies, it is time to return to Business Decision-Making 101: expressly authorizing investments based on NPV and maintaining them based on ROI is the default rule.
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